CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Plastics sells a single product at ₹50 per unit. Variable cost is ₹30 per unit and fixed costs are ₹2,00,000 per year. If sales increase by 10% from a current level of 15,000 units, by how much will profit increase?
Profit increases by ₹30,000. Contribution is ₹20 per unit, and a 10% sales rise adds 1,500 units. Fixed costs stay constant, so the whole additional contribution of 1,500 x ₹20 flows to profit, taking it from ₹1,00,000 to ₹1,30,000.
- A₹30,000Correct
- B₹25,000
- C₹50,000
- D₹20,000
Explanation
Contribution per unit = 50 - 30 = ₹20. Sales rise by 10% of 15,000 = 1,500 units. Fixed costs do not change, so profit rises by 1,500 x 20 = ₹30,000. Check: the old profit is 15,000x20 - 2,00,000 = ₹1,00,000 and the new profit is 16,500x20 - 2,00,000 = ₹1,30,000. ₹20,000 comes from wrongly using 1,000 units.
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