A firm is functioning at 80% of its full capacity, with a normal production volume of 150,000 units. The variable cost for each unit is ₹14, and the total fixed costs amount to ₹800,000. To achieve a desired profit of ₹400,000, what should be the selling price per unit?

Explanation

The company produces 80% of 150,000 units, which equals 120,000 units. Total fixed costs are ₹800,000, and the target profit is ₹400,000. Total contribution needed = Fixed costs + Profit = ₹800,000 + ₹400,000 = ₹1,200,000. Contribution per unit = Total contribution / Units produced = ₹1,200,000 / 120,000 = ₹10 per unit. Since the variable cost per unit is ₹14, the selling price per unit = Variable cost + Contribution = ₹14 + ₹10 = ₹24.00.