Axion Industries is a heavy industrial gear manufacturing company with a manufacturing setup based in Pune. Mr. Andrew, the CFO of the company…

CA Intermediate · Cost and Management Accounting · PYQS · May 2025
Axion Industries is a heavy industrial gear manufacturing company with a manufacturing setup based in Pune. Mr. Andrew, the CFO of the company furnished the following information to Mr. Joe who heads the Finance department. For FY 2024-25: Particulars Amount (in crores) Total Sales 1,00,000 Raw material cost 50,000 Direct wages 15,000 Fixed & variable overheads 25,000 Profit 10,000 Total Number of Units sold 40,000 units The market being very competitive and with the raw materials rates rising, Mr. Andrew raises his concern with Mr. Joe where he expects in the next financial year 2025-26 workers' wages to rise by 20%, fixed costs component to decrease by 500 crores. Total fixed & variable overhead however is to be - 28,500 crores. The total number of units expected to be sold would be 50,000. Required: Calculate the minimum number of units to be sold to sustain the same per unit profit in the financial year 2025-26 also. (Ignore further effects on Fixed costs.)

Suggested Answer and Working Notes:

(i) Calculation of Variable Overhead Per Unit & Fixed Cost (F.Y. 2024-25) Variable cost per unit = Difference in Total Cost / Difference in Units = 28,500 crores -25,000 crores / 50,000 units - 40,000 units = 0.35 crore per unit Therefore, Fixed cost = 25,000 crores - (40,000 x 0.35) = 11,000 crores Revised Fixed cost (FY 2025-26) = 10,500 Crores Desired Profit per unit (₹ 10,000 crores/40,000 units) = 0.25 crores per unit Calculation of Contribution per unit Particulars Per Unit (₹ in crores) Selling price per unit 2.50 Variable Cost: Material 1.25 Labour (0.375 x 120%) 0.45 Variable Overheads 0.35 2.05 Contribution per Unit 0.45 Let the units sold be X Contribution = 0.45X Profit = 0.25X Profit = Contribution - Fixed Cost 0.25X = 0.45X - 10,500 Crores Minimum no. of units to be sold to sustain the same per unit profit, X = 52,500 Units Alternatively, solution can be done in following way: Calculation of Variable Overhead Per Unit & Fixed Cost (F.Y. 2024-25) Variable cost per unit = Difference in Total Cost / Difference in Units = 29,000 crores -25,000 crores / 50,000 units - 40,000 units = 0.40 crore per unit Therefore, Fixed cost = 25,000 crores - (40,000 x 0.40) = 9,000 crores Revised Fixed cost (FY 2025-26) = 8,500 Crores Desired Profit per unit (₹ 10,000 crores/40,000 units) = 0.25 crores per unit Calculation of Contribution per unit (2025-26) Particulars Per Unit (₹ in crores) Selling price per unit 2.50 Variable Cost: Material 1.25 Labour (0.375 x 120%) 0.45 Variable Overheads 0.40 2.10 Contribution per Unit 0.40 Let the units sold be X Contribution = 0.40X Profit = 0.25X Profit = Contribution - Fixed Cost 0.25X = 0.40X - 8,500 Crores Minimum no. of units to be sold to sustain the same per unit profit, X = 56,667 Units

Topics: Marginal Costing

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