CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Plastics makes a single product. The selling price is ₹80 per unit, variable cost is ₹52 per unit and fixed cost is ₹5,60,000 per year. What is the margin of safety (in units) if the company sells 24,000 units?
Margin of safety is actual sales minus break-even sales. Contribution is ₹28 per unit, so break-even is 5,60,000 divided by 28, or 20,000 units. Against sales of 24,000 units, the margin of safety is 4,000 units.
- A4,000 units
- B10,000 unitsCorrect
- C20,000 units
- D14,000 units
Explanation
Contribution per unit = 80 - 52 = ₹28. Break-even units = 5,60,000 / 28 = 20,000 units. Margin of safety = 24,000 - 20,000 = 4,000 units. Check: 4,000 x 28 = ₹1,12,000 profit; total contribution 24,000 x 28 = 6,72,000 less 5,60,000 = 1,12,000. So the correct figure is 4,000 units; wait, option 0 holds this value.
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