CMA Intermediate · Cost Accounting · Marginal Costing
Kaveri Textiles reports sales of ₹10,00,000 yielding profit of ₹1,50,000 in Year 1, and sales of ₹12,00,000 yielding profit of ₹2,30,000 in Year 2. Cost structure and selling price are unchanged. What are the P/V ratio and fixed cost?
The P/V ratio is 40 per cent and fixed cost is ₹2,50,000. Profit rose by ₹80,000 on a sales rise of ₹2,00,000, giving 40 per cent. Year 1 contribution of ₹4,00,000 less profit of ₹1,50,000 leaves fixed cost of ₹2,50,000.
- A40% and ₹2,50,000Correct
- B40% and ₹1,50,000
- C20% and ₹50,000
- D35% and ₹2,00,000
Explanation
P/V ratio = change in profit / change in sales = 80,000 / 2,00,000 = 40%. Contribution in Year 1 = 40% x 10,00,000 = ₹4,00,000; fixed cost = 4,00,000 - 1,50,000 = ₹2,50,000. Check Year 2: 4,80,000 - 2,50,000 = ₹2,30,000. Using ₹1,50,000 as fixed cost wrongly treats profit as fixed cost.
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