CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)
Ravi Textiles sells a shirt at Rs 800. Variable cost is Rs 500 per unit and annual fixed cost is Rs 6,00,000. What is the break-even sales in rupees?
Break-even sales are Rs 16,00,000. Contribution per shirt is Rs 300 on a price of Rs 800, giving a P/V ratio of 37.5 percent. Dividing fixed costs of Rs 6,00,000 by this ratio gives the break-even sales value.
- ARs 12,00,000
- BRs 16,00,000
- CRs 20,00,000Correct
- DRs 9,60,000
Explanation
Contribution per unit = 800 - 500 = Rs 300, so P/V ratio = 300/800 = 37.5%. Break-even sales = 6,00,000 / 0.375 = Rs 16,00,000. Wait, recheck: 6,00,000/0.375 = 16,00,000, so the key is Rs 16,00,000; Rs 20,00,000 would arise from using a 30% ratio.
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