Break-even Analysis for a Small Scale Industry

To determine the break-even production per month for a small scale industry, we need to analyze the fixed costs, variable costs, and sales price. Break-even analysis helps in determining the minimum production level required to cover all the costs incurred by the business.

Fixed Costs
Fixed costs are the expenses that remain constant regardless of the production level. In this case, the fixed cost per month is Rs. 5000. These costs include rent, utilities, insurance, salaries, etc.

Variable Costs
Variable costs are directly related to the production level and vary with the number of units produced. In this case, the variable cost per product is Rs. 20. These costs include raw materials, direct labor, packaging, etc.

Sales Price
The sales price is the amount at which the product is sold to the customers. In this case, the sales price is Rs. 30 per piece.

Calculating Break-even Production
The break-even production can be calculated using the following formula:
Break-even Production = Fixed Costs / (Sales Price per Unit - Variable Cost per Unit)

Substituting the given values:
Break-even Production = 5000 / (30 - 20) = 5000 / 10 = 500 units

Therefore, the break-even production per month for this small scale industry is 500 units.

Explanation
The break-even production is the minimum number of units that need to be produced and sold to cover all the costs without incurring any profit or loss. It represents the point at which total revenue equals total costs.

In this case, the fixed costs of Rs. 5000 remain constant regardless of the production level. The variable costs of Rs. 20 per product increase with the number of units produced. The sales price of Rs. 30 per piece represents the revenue generated from each unit sold.

By dividing the fixed costs by the difference between the sales price per unit and variable cost per unit, we can determine the number of units required to cover the fixed costs and break even.

In this scenario, the small scale industry needs to produce and sell at least 500 units per month to cover its fixed costs and reach the break-even point. Any units produced and sold beyond this quantity will contribute to generating a profit.

Conclusion
Understanding the break-even point is crucial for small scale industries as it helps in planning production levels and pricing strategies. By analyzing fixed costs, variable costs, and sales price, businesses can make informed decisions to ensure profitability and sustainability.