Sources of Funds and Costing
What this domain tests
The exam tests matching finance sources to needs and calculating costs, contribution and break-even.
Core rules
- Sources include owner's savings, family and friends, bank loans, microfinance, trade credit, leasing, angel investment, venture capital, crowdfunding and government schemes.
- Short-term needs suit trade credit or working-capital loans; long-term assets suit term loans or equity.
- Costs: fixed costs do not vary with output; variable costs vary per unit; total cost = fixed + variable.
- Contribution per unit = selling price − variable cost per unit.
- Break-even quantity = fixed cost ÷ contribution per unit.
Worked example
Fixed cost is ₹30,000; selling price is ₹50; variable cost is ₹30. Contribution is ₹20. Break-even = 30,000 ÷ 20 = 1,500 units. At 2,000 units, margin of safety = 500 units. Reasoning: each sale contributes ₹20 toward fixed cost; 1,500 sales cover it exactly.
Traps
Do not treat variable cost per unit as fixed in total. Do not include sunk cost in a new decision. Do not confuse break-even sales value with break-even quantity. Do not assume a scheme provides free money.