Question

Sharma Star Company is interested in analysing its current operations. Investigation shows that for each Rs. 100 of sales, variable costs amount to Rs. 70 and fixed costs amount to Rs. 6,00,000 per year. How much the company must sell, if it wants to earn 15% profit on its Rs. 10,00,000 investment.

• A. Rs. 20,00,000
• B. Rs. 25,00,000
• C. Rs. 30,00,000
• D. Rs. 35,00,000

Answer 1

Answer: (B)

Rs. 25,00,000

This can be solved as.

Selling Price Rs.100

Variable Cost Rs.70

Contribution Rs.30

Fixed Cost Rs.600000

Desired Profit Rs.150000 (15% on investment of Rs. 10 Lacs

Break Even Point on a desired profit level = Fixed Cost+ Desired Profit

Contribution Per unit

=600000+150000

30

= 25000 units

= Rs. 2500000

Cross Check:

Contribution on 25000 units @ 30 Per units= Rs.750000

Fixed Cost + Desired Profit =Rs.750000