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Fixed cost is 1,50,000 and contribution per unit is 15. Units needed to earn a profit of 20,000 are
A10,500
B11,000
C12,500
D11,334
Answer & Solution
Correct answer: D. 11,334
1. Required contribution = fixed cost plus target profit.
2. = 1,50,000 + 20,000 = 1,70,000.
3. Units = required contribution divided by contribution per unit = 1,70,000 / 15.
4. = 11,333.33, and part units cannot be sold, so 11,334 units are needed.
5. Dividing only the profit by contribution and adding break-even units gives 11,333, which understates by rounding down.
_Source: ICAI Cost and Management Accounting Ch14 'Marginal Costing', section 14.8 illustration_
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