CA Intermediate · Cost and Management Accounting · Marginal Costing
Sundaram Foods sells a single product at Rs 50 per unit. Variable cost is Rs 30 per unit and fixed cost is Rs 1,00,000 per period. What is the break-even point in rupees of sales?
The break-even sales are Rs 2,50,000. Contribution per unit is Rs 20 on a price of Rs 50, giving a P/V ratio of 40 per cent. Dividing fixed cost of Rs 1,00,000 by 0.40 gives the sales value at which contribution exactly covers fixed cost.
- ARs 1,66,667
- BRs 2,50,000Correct
- CRs 3,33,333
- DRs 2,00,000
Explanation
Contribution per unit = 50 - 30 = Rs 20, so P/V ratio = 20/50 = 40%. BEP in rupees = 1,00,000 / 0.40 = Rs 2,50,000. Check: 5,000 units x Rs 50 = Rs 2,50,000 and contribution 5,000 x 20 = Rs 1,00,000. Rs 3,33,333 wrongly uses a 30% ratio (variable cost/price is 60%, not used correctly).
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