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CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)

Bharat Gears Ltd reports for a year: sales ₹12,00,000, variable costs ₹7,20,000, fixed costs ₹3,00,000. In the next year, fixed costs will rise by 10% due to a step increase, and selling price will fall 5% with unchanged volume and variable cost per unit. What will the profit be?

Profit will be ₹90,000. Sales fall to ₹11,40,000 after the 5% price cut, giving contribution of ₹4,20,000 after variable costs of ₹7,20,000. Fixed costs rise to ₹3,30,000, leaving ₹90,000.

  1. A₹1,50,000
  2. B₹1,80,000
  3. C₹90,000Correct
  4. D₹1,20,000

Explanation

Present profit = 12,00,000 - 7,20,000 - 3,00,000 = ₹1,80,000. New sales = 11,40,000. Contribution = 11,40,000 - 7,20,000 = 4,20,000. New fixed costs = 3,30,000. Profit = ₹90,000. ₹1,20,000 ignores the fixed cost increase; ₹1,50,000 ignores the price cut impact on fixed cost rise only partially.

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