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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Sundaram Auto Parts produces brake pads. For 8,000 units, total cost is ₹4,40,000 and for 10,000 units, total cost is ₹4,80,000. Assuming the cost behaves as a semi-variable cost with a constant variable rate per unit within this range, what is the fixed cost?

Fixed cost is ₹2,80,000. The variable rate is the change in cost, ₹40,000, divided by the change in units, 2,000, giving ₹20 per unit. Variable cost at 8,000 units is ₹1,60,000, and subtracting it from ₹4,40,000 leaves ₹2,80,000.

  1. A₹1,60,000
  2. B₹2,80,000Correct
  3. C₹2,40,000
  4. D₹3,20,000

Explanation

Variable cost per unit = (4,80,000 − 4,40,000) / (10,000 − 8,000) = 40,000/2,000 = ₹20. Variable cost at 8,000 units = ₹1,60,000. Fixed cost = 4,40,000 − 1,60,000 = ₹2,80,000. Check at 10,000 units: 2,00,000 + 2,80,000 = 4,80,000. The figure ₹1,60,000 is just the variable cost at 8,000 units.

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