CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting
Sharma Plastics produces 8,000 units in a month. Total cost at 8,000 units is Rs 2,60,000 and at 10,000 units is Rs 3,00,000. Assuming a linear semi-variable cost behaviour, what is the monthly fixed cost?
The monthly fixed cost is Rs 1,00,000. The change in total cost of Rs 40,000 over a change of 2,000 units gives a variable cost of Rs 20 per unit. Deducting variable cost of Rs 1,60,000 at 8,000 units from the total of Rs 2,60,000 leaves the fixed cost.
- ARs 1,00,000
- BRs 1,20,000Correct
- CRs 1,40,000
- DRs 40,000
Explanation
Variable cost per unit = (3,00,000 - 2,60,000) / (10,000 - 8,000) = 40,000 / 2,000 = Rs 20. Variable cost at 8,000 units = Rs 1,60,000. Fixed cost = 2,60,000 - 1,60,000 = Rs 1,00,000. Check: 10,000 x 20 = 2,00,000; 3,00,000 - 2,00,000 = 1,00,000. So Rs 1,20,000 is wrong.
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