Contribution margin is a key concept in marginal costing, representing the portion of sales revenue that is not consumed by variable costs. It is calculated by subtracting total variable costs from total sales revenue. This amount contributes to covering fixed costs and generating profit for the business.

Contribution per unit = 25 - 15 = 10. Required units = (Fixed Costs + Target Profit) / Contribution per unit = (8,00,000 + 80,000) / 10 = 88,000 units.

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The margin of safety is the difference between actual sales and the break-even point. Lowering the break-even point (BEP) by reducing fixed costs increases this gap. Similarly, adopting a more profitable product mix increases the contribution margin per unit, which also lowers the break-even point and expands the margin of safety, making both statements correct.

Reaching the break-even point is critical for a new business because it signifies the moment where total revenue equals total costs, meaning the business is no longer incurring losses and has established a foundation for future profitability.

The P/V ratio is calculated as (Contribution / Sales) * 100. Since Contribution = Sales - Variable Cost, the formula becomes (Sales - Variable Cost) / Sales = 0.25. Substituting the variable cost: (S - 300) / S = 0.25. Solving for S: S - 300 = 0.25S, which leads to 0.75S = 300, resulting in a selling price of Rs. 400.

At the break-even point, total contribution equals total fixed costs. Contribution per unit = Selling Price - Variable Cost = 90 - 40 = 50. Total Fixed Costs = Break-even units * Contribution per unit = 6,000 * 50 = 300,000. Thus, the annual fixed costs are Rs 300,000.

Sunk costs are historical costs that have already been incurred and cannot be recovered regardless of any future decision. Because they do not change based on future actions, they are considered irrelevant for decision-making purposes. Managers should focus on incremental or differential costs when evaluating future alternatives.

The assertion is correct because marginal costing is indeed used to compare the cost of producing an additional unit against the external purchase price. However, the reason is incorrect; if the marginal cost (the cost to produce one more unit) is less than the purchase price, it is more economical to manufacture the item internally rather than buying it from an external supplier. Purchasing would only be logical if the marginal cost exceeded the purchase price.

Contribution margin is calculated as the difference between the selling price and variable costs. If the variable cost per unit increases while the selling price remains constant, the contribution margin per unit decreases. This reduction directly impacts the company's ability to cover fixed costs and generate profit.