CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Pickles Ltd sells jars at ₹250 per unit. Variable cost is ₹150 per unit and fixed costs are ₹6,00,000 per year. What is the break-even sales in rupees?
Break-even sales are ₹15,00,000. Contribution per unit is ₹100 on a price of ₹250, so the P/V ratio is 40 percent. Dividing fixed costs of ₹6,00,000 by 40 percent gives ₹15,00,000, the sales at which contribution just covers fixed costs.
- A₹10,00,000
- B₹15,00,000Correct
- C₹6,00,000
- D₹24,00,000
Explanation
Contribution per unit = 250 - 150 = ₹100, so P/V ratio = 100/250 = 40%. Break-even sales = 6,00,000 / 0.40 = ₹15,00,000. Check: 6,000 units x ₹250 = ₹15,00,000 gives contribution ₹6,00,000, equal to fixed costs. Using the variable cost ratio (60%) as the divisor gives ₹10,00,000, which is wrong.
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