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In the production of a product the fixed costs are Rs. 6,000/- and the variable cost is Rs. 10/- per product. If the sale price of the product is Rs. 12/-, the break even volume of products to be made will be:
- a)2000
- b)3000
- c)4000
- d)6000
Correct answer is option 'B'. Can you explain this answer?
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Calculation of Break-even Volume:
Formula to calculate the break-even volume is:
Break-even volume = Fixed costs / (Sales price per unit - Variable cost per unit)
Given,
Fixed costs = Rs. 6,000/-
Variable cost per unit = Rs. 10/-
Sales price per unit = Rs. 12/-
Substituting these values in the formula, we get:
Break-even volume = 6,000 / (12-10)
Break-even volume = 3,000
Hence, the break-even volume of products to be made is 3,000.
Explanation:
The break-even volume is the point at which the total cost and total revenue of a product are equal. In other words, it is the point at which a company is neither making a profit nor a loss.
To calculate the break-even volume, we need to know the fixed costs, variable costs, and sales price per unit of the product. Fixed costs are those costs that do not change with the level of production, while variable costs are those costs that vary with the level of production.
In this question, the fixed costs are Rs. 6,000/-, and the variable cost per unit is Rs. 10/-. The sales price per unit is Rs. 12/-.
Using the formula, we can calculate the break-even volume to be 3,000. This means that the company needs to produce and sell at least 3,000 units of the product to cover its total costs. Any units sold beyond this point will generate a profit for the company.
Therefore, option B, 3,000, is the correct answer.
Formula to calculate the break-even volume is:
Break-even volume = Fixed costs / (Sales price per unit - Variable cost per unit)
Given,
Fixed costs = Rs. 6,000/-
Variable cost per unit = Rs. 10/-
Sales price per unit = Rs. 12/-
Substituting these values in the formula, we get:
Break-even volume = 6,000 / (12-10)
Break-even volume = 3,000
Hence, the break-even volume of products to be made is 3,000.
Explanation:
The break-even volume is the point at which the total cost and total revenue of a product are equal. In other words, it is the point at which a company is neither making a profit nor a loss.
To calculate the break-even volume, we need to know the fixed costs, variable costs, and sales price per unit of the product. Fixed costs are those costs that do not change with the level of production, while variable costs are those costs that vary with the level of production.
In this question, the fixed costs are Rs. 6,000/-, and the variable cost per unit is Rs. 10/-. The sales price per unit is Rs. 12/-.
Using the formula, we can calculate the break-even volume to be 3,000. This means that the company needs to produce and sell at least 3,000 units of the product to cover its total costs. Any units sold beyond this point will generate a profit for the company.
Therefore, option B, 3,000, is the correct answer.
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In the production of a product the fixed costs are Rs. 6,000/- and the variable cost is Rs. 10/- per product. If the sale price of the product is Rs. 12/-, the break even volume of products to be made will be:a)2000 b)3000 c)4000 d)6000Correct answer is option 'B'. Can you explain this answer?
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