Skip to content

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

Sagar Ltd has a P/V ratio of 40% and fixed costs of Rs 2,40,000. Its margin of safety is 25% of actual sales. What is the profit?

Profit is Rs 80,000. Break-even sales are Rs 6,00,000 (fixed cost divided by 40 percent), which equals 75 percent of actual sales, so actual sales are Rs 8,00,000. Margin of safety Rs 2,00,000 multiplied by the P/V ratio gives profit.

  1. ARs 80,000
  2. BRs 60,000Correct
  3. CRs 40,000
  4. DRs 1,00,000

Explanation

Break-even sales = 2,40,000/0.40 = Rs 6,00,000, which is 75% of actual sales. Actual sales = Rs 8,00,000 and margin of safety = Rs 2,00,000. Profit = 2,00,000 x 40% = Rs 80,000. So the correct figure is Rs 80,000, not Rs 60,000.

Did you get it right without looking?

One question tells you little. A timed set on Marginal Costing (Management Accounting) shows your real accuracy, how long you take and where you lose marks.

Practise Marginal Costing (Management Accounting)Free diagnostic mock

More Marginal Costing (Management Accounting) questions