Discussion
The ratio of variable cost to sales is 70%. The B.E. Point occurs at 80% capacity. Find 100% capacity sales when fixed cost is ₹ 6,00,000. Assume that P/V Ratio, variable cost ratio are complement each other.
Answer: A
Sales at 100% capacity are ₹ 25,00,000.
With a variable cost ratio of 70%, the P/V ratio is the complement, 30%. Break-even sales are fixed cost divided by the P/V ratio:
\[ \begin{aligned} \text{BEP} &= \frac{6{,}00{,}000}{0.30} = 20{,}00{,}000 \\ \text{100\% sales} &= \frac{20{,}00{,}000}{0.80} = 25{,}00{,}000 \end{aligned} \]
Since break-even occurs at 80% of capacity, full capacity sales are ₹ 25,00,000. The option of ₹ 20,00,000 is the break-even sales figure itself, and ₹ 30,00,000 and ₹ 40,00,000 do not follow from the data.
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