CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)
Sharma Textiles sells a product at ₹50 per unit. Variable cost is ₹30 per unit and fixed costs are ₹1,80,000 per year. What is the break-even point in units?
The break-even point is 9,000 units. Contribution per unit is ₹20 (₹50 selling price less ₹30 variable cost), and dividing fixed costs of ₹1,80,000 by this contribution gives the number of units needed to recover fixed costs with zero profit.
- A3,600 units
- B6,000 units
- C9,000 unitsCorrect
- D4,500 units
Explanation
Contribution per unit = 50 - 30 = ₹20. Break-even units = 1,80,000 / 20 = 9,000 units. Check: 9,000 x 20 = ₹1,80,000 equals fixed costs. Dividing by the selling price gives 3,600 units, which wrongly ignores variable cost.
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