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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 Rs 2,40,000. What sales value is needed to earn a profit of Rs 60,000?

Sales of Rs 7,50,000 are required. Fixed costs plus target profit equal Rs 3,00,000, which must be covered by contribution. Since contribution is 40% of sales, sales equal 3,00,000 divided by 0.40, giving Rs 7,50,000.

  1. ARs 6,00,000
  2. BRs 7,50,000Correct
  3. CRs 1,50,000
  4. DRs 4,50,000

Explanation

Required sales = (Fixed cost + Desired profit) / P/V ratio = (2,40,000 + 60,000) / 0.40 = Rs 7,50,000. Rs 6,00,000 is the break-even sales (2,40,000/0.40), which ignores the target profit.

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