Question

With every passing year, cement companies are generating more profits per rupee of sale. This is occurring due to improved efficiencies of working. ICL follows this trend in 2001-02 and increases its profit before tax per rupee of sale by 10% over the previous year. Part of the reason for this profit figure is that its fixed expenses dropped to 10% of the sales value in 2001-02. But there is also some simultaneous change in the variable expenses. Identify the change.

• A. Increases by around 24%
• B. Decreases by around 24%
• C. Increases by around 20%
• D. Decreases by around 20%

Answer 1

The correct option is C Increases by around 20%

Profit before tax per rupee of sale has risen by 10%. Thus, this value will become: 9.94 $\times$ 1.1 = 10.93.
Thus, the total cost would be: 89.07 = Fixed expenses + Variable expenses.
Also, fixed expenses have become 10%, hence variable expenses should be 79.07% $\to$ a rise of 13.58 on 65.49 = 20.73% increase