CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
Sharma Traders has a P/V ratio of 40% and fixed costs of ₹2,00,000. What sales value is needed to earn a profit of ₹50,000?
Sales of ₹6,25,000 are needed. Contribution required must cover fixed cost of ₹2,00,000 plus profit of ₹50,000, totalling ₹2,50,000. Dividing this by the 40% P/V ratio gives the required sales value.
- A₹6,25,000Correct
- B₹5,00,000
- C₹1,25,000
- D₹6,00,000
Explanation
Required sales = (Fixed cost + Desired profit) / P/V ratio = (2,00,000 + 50,000) / 0.40 = ₹6,25,000. Using only fixed cost gives ₹5,00,000, which is the break-even sales and ignores the target profit.
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