CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Foods has a P/V ratio of 40% and fixed cost of ₹6,00,000. It wants a profit of ₹2,00,000. What sales value is required?
Sales of ₹20,00,000 are required. Target contribution is fixed cost ₹6,00,000 plus profit ₹2,00,000, equal to ₹8,00,000. Dividing by the P/V ratio of 40% gives ₹20,00,000. The figure ₹15,00,000 is only the break-even sales.
- A₹15,00,000
- B₹20,00,000Correct
- C₹5,00,000
- D₹8,00,000
Explanation
Required contribution = fixed cost + profit = 6,00,000 + 2,00,000 = 8,00,000. Sales = 8,00,000 / 0.40 = ₹20,00,000. Check: 40% of 20,00,000 = 8,00,000. Using only fixed cost gives ₹15,00,000, which is the break-even sales and ignores the target profit.
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