CA Intermediate · Cost and Management Accounting · Marginal Costing
Sundaram Pens Ltd sells a pen at Rs 50 per unit. Variable cost is Rs 30 per unit and total fixed cost is Rs 2,40,000 per year. The company wants a profit of Rs 60,000. How many units must it sell?
The company must sell 15,000 units. Contribution per unit is Rs 20 (50 minus 30). Fixed cost plus desired profit is Rs 3,00,000, and dividing by Rs 20 gives 15,000 units. Selling only 12,000 units would merely break even.
- A12,000 units
- B15,000 unitsCorrect
- C10,000 units
- D8,000 units
Explanation
Contribution per unit = 50 - 30 = Rs 20. Required units = (Fixed cost + Desired profit) / Contribution per unit = (2,40,000 + 60,000) / 20 = 15,000 units. Check: 15,000 x 20 = 3,00,000; less 2,40,000 gives 60,000. Option 12,000 is the break-even quantity, which ignores the desired profit.
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