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CMA Intermediate · Management Accounting · Introduction to Management Accounting

Kaveri Textiles Ltd. uses management accounting to guide pricing. A product sells for Rs 50 per unit with variable cost of Rs 30 per unit and fixed costs of Rs 40,000 per period. Management wants to know the sales volume needed to cover costs, an advantage of marginal-cost-based analysis. What is the break-even point in units?

Break-even is 2,000 units. Contribution per unit is Rs 20 (50 minus 30), and fixed costs of Rs 40,000 divided by Rs 20 give 2,000 units. Dividing fixed cost by selling price would wrongly ignore variable cost.

  1. A800 units
  2. B1,333 units
  3. C2,000 unitsCorrect
  4. D4,000 units

Explanation

Contribution per unit = 50 - 30 = Rs 20. Break-even = 40,000 / 20 = 2,000 units. Check: 2,000 x 20 = 40,000 equals fixed cost. Dividing by selling price gives 800, which is wrong because it ignores variable cost.

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