CA Inter P4 · Chapter 13 · Question 4 of 10
Sales and profit of a company for two periods were: Period 1 sales ₹12,00,000, profit ₹1,10,000; Period 2 sales ₹15,00,000, profit ₹1,82,000. Assuming the same selling price, variable cost ratio and fixed costs in both periods, the fixed cost is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹1,78,000
Explanation
P/V ratio = change in profit / change in sales = (₹1,82,000 - ₹1,10,000) / (₹15,00,000 - ₹12,00,000) = ₹72,000 / ₹3,00,000 = 24%. Contribution in Period 1 = ₹12,00,000 x 24% = ₹2,88,000. Fixed cost = contribution - profit = ₹2,88,000 - ₹1,10,000 = ₹1,78,000. Check with Period 2: ₹3,60,000 - ₹1,82,000 = ₹1,78,000.
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