Question

Hizan is the owner of a company manufacturing shirts. His company is selling the shirts at a price of ₹200 per unit. The variable costs is ₹150 per unit. The fixed costs for the period is ₹5,00,000/-. Calculate the minimum number of units that must be sold for the company to attain break even. Show break even in terms of rupees.

Answer 1

Given:

Selling price = ₹200 per unit

Variable costs = ₹150 per unit.

Fixed costs for the period = ₹5,00,000

To find:

The minimum number of units that must be sold for the company to attain break even and break even in terms of rupees.

Solution:

We know that,

Total cost = Fixed cost + Variable cost

Let the number of manufacturing shirts be x, so the cost function for the shirts is

$C(x)=500000+150x$

Selling price is ₹200 per unit. So, revenue function is

$R(x)=200x$

At break even point the company has no profit no loss. It means, revenue is equal to cost.

$R(x)=C(x)$

$200x=5,00,000+150x$

$200x-150x=5,00,000$

$50x=5,00,000$

Divide both sides by 50.

$x=10000$

Therefore, minimum number of units that must be sold for the company to attain break even is 10,000.

To find the break even price, substitute x=10000 in either cost function or revenue function.

$R(10000)=200(10,000)$

$R(10000)=20,00,000$

Therefore, the break even in terms of rupees is ₹20,00,000.