Fixed cost Rs. 80,000; Variable cost Rs. 2 per unit; Selling price_Rs. 10 per unit; turnover required for a profit target of Rs. 60,000.a.Rs. 1,75,000.b.Rs. 1,86,667.c.Rs. 1.57,000.d.Rs. 1,17,400.
Question
Fixed cost Rs. 80,000; Variable cost Rs. 2 per unit; Selling price_Rs. 10 per unit; turnover required for a profit target of Rs. 60,000.a.Rs. 1,75,000.b.Rs. 1,86,667.c.Rs. 1.57,000.d.Rs. 1,17,400.
Solution
To find the turnover required for a profit target, we first need to calculate the total cost and then add the profit target to it.
Step 1: Calculate the total cost The total cost is the sum of the fixed cost and the variable cost. The variable cost is the cost per unit times the number of units. However, we don't know the number of units yet, so we'll leave it as a variable for now.
Total Cost = Fixed Cost + Variable Cost * Quantity Total Cost = Rs. 80,000 + Rs. 2 * Quantity
Step 2: Calculate the turnover The turnover is the selling price times the number of units. Again, we don't know the number of units yet, so we'll leave it as a variable.
Turnover = Selling Price * Quantity Turnover = Rs. 10 * Quantity
Step 3: Set the profit target We want the turnover to be the total cost plus the profit target.
Turnover = Total Cost + Profit Target Rs. 10 * Quantity = Rs. 80,000 + Rs. 2 * Quantity + Rs. 60,000
Step 4: Solve for Quantity Subtract Rs. 2 * Quantity from both sides and then divide by Rs. 10 to solve for Quantity.
Quantity = (Rs. 80,000 + Rs. 60,000) / (Rs. 10 - Rs. 2) Quantity = Rs. 140,000 / Rs. 8 Quantity = 17,500 units
Step 5: Calculate the required turnover Multiply the quantity by the selling price to get the required turnover.
Turnover = Selling Price * Quantity Turnover = Rs. 10 * 17,500 Turnover = Rs. 175,000
So, the turnover required for a profit target of Rs. 60,000 is Rs. 175,000. Therefore, the correct answer is a. Rs. 1,75,000.
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