CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)
Sharma Foods has a P/V ratio of 35% and fixed costs of ₹3,50,000. How much sales are needed to earn a target profit of ₹1,05,000?
Sales of ₹13,00,000 are needed. The firm must earn contribution equal to fixed costs plus target profit, which is ₹3,50,000 + ₹1,05,000 = ₹4,55,000. Dividing by the 35% P/V ratio gives ₹13,00,000. Break-even sales alone would be only ₹10,00,000.
- A₹10,00,000
- B₹13,00,000Correct
- C₹4,55,000
- D₹1,30,000
Explanation
Required contribution = fixed cost + profit = 3,50,000 + 1,05,000 = ₹4,55,000. Sales = 4,55,000 / 0.35 = ₹13,00,000. Check: 35% of 13,00,000 = 4,55,000, less fixed 3,50,000 = 1,05,000. ₹10,00,000 is only break-even sales, ignoring the target profit.
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