CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)
Kapoor Industries has a P/V ratio of 40% and fixed costs of ₹2,40,000. Actual sales are ₹8,00,000. What is the margin of safety in rupees?
The margin of safety is ₹2,00,000. Break-even sales equal fixed costs divided by the P/V ratio, ₹2,40,000 / 40% = ₹6,00,000. Subtracting this from actual sales of ₹8,00,000 gives the sales cushion above break-even.
- A₹2,00,000Correct
- B₹6,00,000
- C₹3,20,000
- D₹5,60,000
Explanation
Break-even sales = 2,40,000 / 0.40 = ₹6,00,000. Margin of safety = 8,00,000 - 6,00,000 = ₹2,00,000. Check: contribution 3,20,000 less fixed 2,40,000 = profit 80,000, which equals 2,00,000 x 40%. Option ₹6,00,000 is the break-even sales, not the margin.
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