CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Pens Ltd sells a single product at Rs 50 per unit. Variable cost is Rs 30 per unit and fixed costs are Rs 2,00,000 per year. What is the break-even sales in rupees?
Break-even sales are Rs 5,00,000. The P/V ratio is 40 percent, being contribution of Rs 20 on a selling price of Rs 50, and fixed costs of Rs 2,00,000 divided by 0.40 give the break-even sales value.
- ARs 3,33,333
- BRs 5,00,000Correct
- CRs 4,00,000
- DRs 6,66,667
Explanation
P/V ratio = (50-30)/50 = 40%. Break-even sales = 2,00,000 / 0.40 = Rs 5,00,000. Check: 10,000 units x Rs 20 contribution = Rs 2,00,000. Rs 4,00,000 wrongly divides by 50% (using contribution/variable-cost confusion).
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