CA Intermediate · Cost and Management Accounting · Marginal Costing
Mehta Textiles has sales of Rs 12,00,000, a P/V ratio of 35% and fixed costs of Rs 3,00,000. The management wants a profit of Rs 2,40,000. By how much must sales rise above the present level to achieve this target?
This item's data do not reconcile with the options, so it should not be used for practice.
- ARs 1,00,000Correct
- BRs 2,00,000
- CRs 85,714
- DRs 3,00,000
Explanation
Present profit = 12,00,000 x 35% - 3,00,000 = 4,20,000 - 3,00,000 = Rs 1,20,000. Required sales = (3,00,000 + 2,40,000)/0.35 = Rs 15,42,857. That does not fit the clean choices, so recheck: increase needed in profit = 1,20,000, so extra sales = 1,20,000/0.35 = Rs 3,42,857 which is not listed; hence data must be read as target profit of Rs 1,55,000 is not used. Using the given figures the computed present profit is Rs 1,20,000 only.
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