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

Sharma Textiles sells a single product at ₹50 per unit. Variable cost is ₹30 per unit and fixed costs are ₹1,20,000 per year. What is the break-even point in units?

The break-even point is 6,000 units. Contribution per unit is ₹20 (selling price ₹50 less variable cost ₹30), and dividing fixed costs of ₹1,20,000 by this contribution gives 6,000 units, at which total contribution just covers fixed costs.

  1. A2,400 units
  2. B4,000 units
  3. C6,000 unitsCorrect
  4. D3,000 units

Explanation

Contribution per unit = 50 - 30 = ₹20. Break-even units = 1,20,000 / 20 = 6,000 units. Check: 6,000 x 20 = ₹1,20,000 equals fixed costs. Option 2,400 divides by the selling price (50) instead of the contribution per unit, which is wrong.

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