Question

A toy manufacturing factory has an annual capacity of 12,000 toys. If the fixed costs are rupees 1 lakh/year, variable cost rupees 20 per unit, and selling price rupees 40 per unit, the quantity to break-even is ______ units.
1. 5000
2. 300
3. 2500
4. None of these

Answer 1

Correct Answer - Option 1 : 5000

Concept:

\({\rm{Break\;even\;point}} = \frac{{Total\;fixed\;cost\;\left( {TFC} \right)}}{{Price\;per\;unit\;\left( P \right) - Variable\;cost\;\left( {V.C.} \right)}}\)

Calculation:

Given:

Total fixed cost (TFC) = 100000, P = 40, VC = 20.

\(Break~even ~point = {100000\over40-20} =5000\).

Hence, the quantity of break-even is 5000 units.