CMA Intermediate · Cost Accounting · Marginal Costing
Sundaram Pens Ltd sells a product at Rs 50 per unit. Variable cost is Rs 30 per unit and total fixed costs are Rs 2,00,000. What is the P/V ratio and the break-even sales in rupees?
The P/V ratio is 40% because contribution of Rs 20 is 40% of the Rs 50 selling price. Break-even sales equal fixed costs divided by P/V ratio, which is Rs 2,00,000 divided by 0.40, giving Rs 5,00,000.
- A40% and Rs 5,00,000Correct
- B60% and Rs 3,33,333
- C40% and Rs 3,33,333
- D20% and Rs 10,00,000
Explanation
Contribution per unit = 50 - 30 = Rs 20. P/V ratio = 20/50 = 40%. Break-even sales = 2,00,000 / 0.40 = Rs 5,00,000. Option with 60% uses variable cost ratio instead of P/V ratio.
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