The sales at which a firm would earn profit after tax @ 8% of sales, if fixed cost is Rs. 45,000 ;…
With Selling Price = Rs. 50 and Variable Cost = Rs. 30 per unit, the P/V Ratio is (50 - 30) / 50 = 40% (0.40). To earn a Profit After Tax (PAT) of 8% of Sales (0.08 S) at a…
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The sales at which a firm would earn profit after tax @ 8% of sales, if fixed cost is Rs. 45,000 ; selling price Rs. 50 per unit, variable cost Rs. 30 per unit and tax rate 20% :
Answer and explanation
Correct answer B
With Selling Price = Rs. 50 and Variable Cost = Rs. 30 per unit, the P/V Ratio is (50 - 30) / 50 = 40% (0.40). To earn a Profit After Tax (PAT) of 8% of Sales (0.08 S) at a 20% tax rate, the required Profit Before Tax (PBT) is 0.08 S / (1 - 0.20) = 0.10 S (10% of Sales). Using Contribution = Fixed Cost + PBT gives 0.40 S = 45,000 + 0.10 S, so 0.30 S = 45,000 and required Sales (S) = Rs. 1,50,000.
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UGC NET Commerce