The correct answer is: 98,000 units.
To calculate the number of units that must be sold to earn a profit of Rs. 80,000 per year, we can use the following formula:
Number of units = (Fixed costs + Profit) / (Sales price – Variable costs)
In this case, we have the following information:
- Fixed costs = Rs. 5,00,000
- Profit = Rs. 80,000
- Sales price = Rs. 25 per unit
- Variable costs = Rs. 12 per unit
Substituting these values into the formula, we get:
Number of units = (5,00,000 + 80,000) / (25 – 12) = 98,000 units
Therefore, the firm must sell 98,000 units to earn a profit of Rs. 80,000 per year.
Option A is incorrect because it is the number of units that must be sold to break even. Option B is incorrect because it is the number of units that must be sold to earn a profit of Rs. 1,00,000 per year. Option C is incorrect because it is the number of units that must be sold to earn a profit of Rs. 1,20,000 per year.