Skip to content

CA Intermediate · Cost and Management Accounting · Marginal Costing

Rohan Appliances has sales of Rs 10,00,000, variable costs of Rs 6,00,000 and fixed costs of Rs 2,00,000. Management plans to cut the selling price by 10% and expects volume to rise by 25%. Variable cost per unit and total fixed costs stay unchanged. What will be the profit after the change?

Profit after the change is Rs 1,75,000. With a 10% price cut the price falls from Rs 100 to Rs 90 per unit, and volume rises to 12,500 units, giving contribution of Rs 30 x 12,500 = Rs 3,75,000. Deducting fixed costs of Rs 2,00,000 leaves Rs 1,75,000.

  1. ARs 2,50,000
  2. BRs 1,25,000Correct
  3. CRs 2,00,000
  4. DRs 1,75,000

Explanation

Take 10,000 units: price Rs 100, variable cost Rs 60. New price = Rs 90, new volume = 12,500 units. New contribution per unit = 90 - 60 = Rs 30, total = 3,75,000. Less fixed cost 2,00,000 gives profit Rs 1,75,000. Check: sales 11,25,000 less variable cost 7,50,000 = 3,75,000 contribution, less 2,00,000 = 1,75,000. So the correct profit is Rs 1,75,000, which is option D, not B.

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.

Practise Marginal CostingFree diagnostic mock

More Marginal Costing questions