CA Intermediate · Cost and Management Accounting · Marginal Costing
Kaveri Textiles has a P/V ratio of 40% and fixed costs of Rs 6,00,000. It wants a profit of Rs 3,00,000. What sales value is required?
Required sales are Rs 22,50,000. Contribution must cover both fixed cost of Rs 6,00,000 and the target profit of Rs 3,00,000, a total of Rs 9,00,000. Dividing this by the 40 per cent P/V ratio gives the required sales value.
- ARs 15,00,000
- BRs 7,50,000
- CRs 22,50,000Correct
- DRs 9,00,000
Explanation
Required sales = (Fixed cost + Desired profit) / P/V ratio = (6,00,000 + 3,00,000) / 0.40 = Rs 22,50,000. Check: contribution 40% of 22,50,000 = 9,00,000, less fixed cost 6,00,000 = profit 3,00,000. Rs 15,00,000 is the break-even sales, ignoring the desired profit.
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