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Last year, a manufacturer produced 15000 products which were sold for Rs. 300 each. At that volume, the fixed costs were Rs. 15.2 lacs and total variable costs were Rs. 21 lacs. The break even quantity of product would be: 
  • a)
    4000  
  • b)
    7800  
  • c)
    8400  
  • d)
    9500 
Correct answer is option 'D'. Can you explain this answer?
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Calculation of Break Even Quantity:

Total Cost = Fixed Cost + Variable Cost

Variable Cost per unit = Total Variable Cost / Total Units Produced

= Rs. 2100000 / 15000

= Rs. 140

Total Cost per unit = Fixed Cost per unit + Variable Cost per unit

= Rs. 1520000 / 15000 + Rs. 140

= Rs. 202.67

Break Even Quantity = Fixed Cost / (Price per unit - Variable Cost per unit)

= Rs. 1520000 / (300 - 140)

= 9500

Therefore, the break even quantity of product is 9500.

Explanation:

Break even quantity is the quantity of products that need to be sold in order to cover all the costs incurred in producing and selling the products. It is the point where the total revenue earned from the sales of the products is equal to the total cost incurred in producing and selling the products.

In this case, the manufacturer produced 15000 products which were sold for Rs. 300 each. The fixed costs incurred were Rs. 15.2 lacs and the total variable costs were Rs. 21 lacs.

To calculate the break even quantity, we need to first calculate the variable cost per unit and the total cost per unit. The variable cost per unit is calculated by dividing the total variable cost by the total units produced. The total cost per unit is calculated by adding the fixed cost per unit to the variable cost per unit.

Once we have calculated the total cost per unit, we can use the break even formula to calculate the break even quantity. The break even formula is calculated by dividing the fixed cost by the difference between the price per unit and the variable cost per unit.

In this case, the break even quantity is 9500. This means that the manufacturer needs to sell 9500 products in order to cover all the costs incurred in producing and selling the products.
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