Cost Accounting

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Meekha (Querist)
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22 December 2009 Can any one please help me to solve this:?

Q ltd is currently operating at 80% capacity level. The production under normal capacity level is Rs.1,50,000 units. The variable cost/unit is Rs.14 and the total fixed costs are Rs.8,00,000. If the company wants to earn a profit of Rs.4,00,000, then the price of the product/unit should be?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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22 December 2009 Total Contribution required = Rs.400000+ Rs.800000 is Rs.1200000

so contribution per unit = 1200000/1500000 = Rs.8

So variable cost Rs.14 per unit + Contribution Rs.8 Perunit

Sales price for Earing Profit Rs.400000/- is (14+8) =22

So Answer is Rs.22 per unit sales price

Heera Nahariya

Heera Nahariya (Expert)
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23 December 2009 perfect. agree with expert

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Meekha

Meekha (Querist)
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23 December 2009 Thank you sir. But they have given options like 37.50, 24.00, 38.25, and 34.50. What is it? Can there be any other method Sir?

Jag Bhushan Sharma

Jag Bhushan Sharma (Expert)
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24 December 2009 If the company is working at 80% of normal capacity which is 1,50,000 units, this means company is producing 150000x.8=120000 units. So the contribution required per unit is 1200000/120000=Rs.10/unit. So the selling price should be v.c.+Cont. i.e. Rs.14+10=24.

Meekha

Meekha (Querist)
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24 December 2009 Thank you sir.