CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Plastics makes a single product selling at Rs 50 per unit. Variable cost is Rs 30 per unit and fixed costs are Rs 2,40,000 per year. The firm wants a profit of Rs 60,000. How many units must it sell?
The firm must sell 15,000 units. Contribution is Rs 20 per unit, and fixed costs plus target profit total Rs 3,00,000. Dividing Rs 3,00,000 by Rs 20 gives 15,000 units. Selling only 12,000 units would merely break even.
- A12,000 units
- B15,000 unitsCorrect
- C9,000 units
- D10,800 units
Explanation
Contribution per unit = 50 - 30 = Rs 20. Required units = (Fixed cost + desired profit)/contribution per unit = (2,40,000 + 60,000)/20 = 15,000 units. Check: 15,000 x 20 = 3,00,000; less fixed cost 2,40,000 = 60,000 profit. 12,000 units is the break-even quantity, which ignores the target profit.
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