CA Intermediate · Cost and Management Accounting · Marginal Costing
Anand Foods makes one product selling at Rs 80 with variable cost Rs 50 per unit. Fixed costs are Rs 6,00,000. It wants a profit of Rs 3,00,000 after the fixed costs are increased by 10% through a new rent agreement. How many units must it sell?
Anand Foods must sell 32,000 units. Revised fixed costs are Rs 6,60,000, add the target profit of Rs 3,00,000 to get required contribution of Rs 9,60,000, and divide by contribution of Rs 30 per unit.
- A30,000 units
- B28,000 unitsCorrect
- C32,000 units
- D22,000 units
Explanation
Contribution per unit = 80-50 = Rs 30. New fixed costs = 6,00,000 x 1.10 = 6,60,000. Required contribution = 6,60,000+3,00,000 = 9,60,000. Units = 9,60,000/30 = 32,000. So the correct figure is 32,000 units. Using old fixed costs gives 30,000, which is wrong.
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