Question

A manufacturing company is selling a product for Rs. 15 per unit with variable cost of Rs. 10 per unit. The fixed cost of the asset is Rs. 50,000. How many units should be produced to breakdown?
1. 2000
2. 5000
3. 8000
4. 10000

Answer 1

Correct Answer - Option 4 : 10000

Concept:

If x number of units are produced in the system then

Total sale = sx

Fixed cost = F

variable cost = vx

and Profit = P, 

where s is the sale cost per unit and v is the variable cost per unit

Total sale = Total cost + Profit

sx = F + vx + P

At break-even point, Profit (P) = 0

So, sx = F + vx

\(x = \frac{F}{{s - v}}\)

Calculation:

Given, F = 50,000 Rs., v = 10 Rs. and s = 15 Rs.

Then,

\(x = \frac{50000}{{15 - 10}}= 10000 \;units\)