CS Executive · Corporate Accounting and Financial Management · Operational Approach to Financial Decision
Gupta Foods has a P/V ratio of 40% and fixed costs of Rs 6,00,000. Sales needed to earn a profit of Rs 2,00,000 are:
Sales of Rs 20,00,000 are needed. Required contribution is fixed cost Rs 6,00,000 plus target profit Rs 2,00,000, i.e. Rs 8,00,000, and dividing by the P/V ratio of 40% gives Rs 20,00,000 of sales.
- ARs 15,00,000
- BRs 20,00,000Correct
- CRs 5,00,000
- DRs 12,00,000
Explanation
Required contribution = fixed cost + target profit = 6,00,000 + 2,00,000 = Rs 8,00,000. Sales = 8,00,000 / 0.40 = Rs 20,00,000. Check: 40% of 20,00,000 = 8,00,000, less 6,00,000 gives 2,00,000 profit. Rs 15,00,000 is the break-even sales, which ignores the target profit.
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