CA Intermediate · Cost and Management Accounting · Marginal Costing
Ravi Engineering Ltd has a margin of safety of Rs 6,00,000, which is 40% of its actual sales. Its P/V ratio is 30%. What is its fixed cost?
Fixed cost is Rs 2,70,000. Actual sales are Rs 15,00,000 since the Rs 6,00,000 margin of safety is 40 percent of sales, so break-even sales are Rs 9,00,000. Multiplying break-even sales by the 30 percent P/V ratio gives the fixed cost.
- ARs 2,70,000Correct
- BRs 1,80,000
- CRs 4,50,000
- DRs 3,60,000
Explanation
Actual sales = 6,00,000/0.40 = Rs 15,00,000. Break-even sales = 15,00,000 - 6,00,000 = Rs 9,00,000. Fixed cost = 9,00,000 x 30% = Rs 2,70,000. Check: profit = 6,00,000 x 30% = Rs 1,80,000 = contribution 4,50,000 - fixed 2,70,000. Rs 1,80,000 is the profit, not fixed cost.
Did you get it right without looking?
One question tells you little. A timed set on Marginal Costing shows your real accuracy, how long you take and where you lose marks.
More Marginal Costing questions
- In marginal costing, which of the following is treated as a period cost and is charged in full to the Profit and Loss account of the period?
- Which statement about marginal costing is correct under standard ICAI treatment?
- Kaveri Plastics makes a single product selling at Rs 50 per unit. Variable cost is Rs 30 per unit and fixed costs are Rs 2,40,000 per year. …
- Which of the following is treated as a product cost (included in inventory valuation) under marginal costing?
- Sundaram Appliances makes products A and B, both processed on one machine limited to 12,000 hours. A sells at ₹120 with variable cost ₹80 an…
- Kaveri Plastics sells a single product at ₹50 per unit. Variable cost is ₹30 per unit and fixed costs are ₹2,00,000 per year. If sales incre…