CA Intermediate · Cost and Management Accounting · Marginal Costing
Ketan Foods Ltd sells a product at Rs 80 per unit. Variable cost is Rs 50 per unit and fixed cost is Rs 2,40,000 per year. How many units must be sold to earn a profit of Rs 60,000?
The company must sell 10,000 units. Contribution per unit is Rs 30, and fixed cost plus desired profit is Rs 3,00,000, so dividing gives 10,000 units. The 8,000-unit figure is only the break-even point and does not include the target profit.
- A8,000 units
- B10,000 unitsCorrect
- C3,000 units
- D7,500 units
Explanation
Contribution per unit = 80 - 50 = Rs 30. Required units = (Fixed cost + desired profit) / contribution per unit = (2,40,000 + 60,000) / 30 = 10,000 units. Check: 10,000 x 30 = 3,00,000; less fixed cost 2,40,000 gives profit 60,000. 8,000 units is the break-even quantity, which ignores the desired profit.
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