CMA Intermediate · Cost Accounting · Marginal Costing
Kaveri Textiles has a P/V ratio of 40% and fixed costs of Rs 6,00,000. Sales are Rs 20,00,000. What is its margin of safety in rupees?
Margin of safety is actual sales minus break-even sales. Break-even sales are Rs 6,00,000 divided by 40%, which is Rs 15,00,000. Subtracting from sales of Rs 20,00,000 gives a margin of safety of Rs 5,00,000.
- ARs 5,00,000Correct
- BRs 15,00,000
- CRs 2,00,000
- DRs 8,00,000
Explanation
Break-even sales = 6,00,000 / 0.40 = Rs 15,00,000. Margin of safety = 20,00,000 - 15,00,000 = Rs 5,00,000. Rs 15,00,000 is the break-even sales, not the margin.
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