On using reducing balance method on an asset of Rs. 20,000 at the rate of 10% per annum, depreciation for third year will be:
A. Rs. 6,000
B. Rs. 1,800
C. Rs. 1,620
D. Rs. 2,000
Answer: Option C
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solution:
Step 1 – Calculate P/V Ratio
P/V Ratio = (Sales − Variable Cost) / Sales × 100 = (4,00,000 − 2,00,000) / 4,00,000 × 100 = 50%
Step 2 – Calculate BEP of Sales
BEP (Sales Value) = Fixed Cost / P/V Ratio = 1,80,000 / 0.50 = Rs. 3,60,000
The Break Even Point is Rs. 3,60,000, meaning the business must achieve sales of Rs. 3,60,000 to cover all its costs with zero profit or loss.