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CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)

Mehta Auto Parts has fixed costs of ₹3,00,000. Selling price is ₹100 per unit and variable cost ₹60 per unit. How many units must be sold to earn a target profit of ₹1,00,000?

The firm must sell 10,000 units. Fixed costs plus target profit total ₹4,00,000, and with a contribution of ₹40 per unit this requires 10,000 units. The break-even volume of 7,500 units only recovers fixed costs and gives no profit.

  1. A7,500 units
  2. B10,000 unitsCorrect
  3. C2,500 units
  4. D6,667 units

Explanation

Contribution per unit = 100 - 60 = ₹40. Required units = (3,00,000 + 1,00,000) / 40 = 10,000 units. Check: 10,000 x 40 = 4,00,000 less 3,00,000 = 1,00,000 profit. 7,500 units is just the break-even quantity.

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