Calculation of Break-even point in Pratibha Ltd.

To calculate the break-even point in Pratibha Ltd., we need to use the following formula:

Break-even point = Fixed costs / (Price per unit - Variable costs per unit)

Let’s assume that Pratibha Ltd. has the following costs at an activity level of 10,000 units:

- Fixed costs = $50,000
- Variable costs per unit = $5
- Price per unit = $10

Substituting the values in the formula:

Break-even point = $50,000 / ($10 - $5) = 10,000 units

This means that Pratibha Ltd. needs to sell 10,000 units to break-even. At this level of activity, the company’s total revenue will be equal to its total costs.

Explanation:

The break-even point is the point at which a company’s total revenue is equal to its total costs. At this point, the company is not making any profit or loss. It is important for companies to know their break-even point so that they can plan their pricing and production strategies accordingly.

In the case of Pratibha Ltd., the break-even point is 10,000 units. This means that the company needs to sell at least 10,000 units to cover its fixed and variable costs. If the company sells fewer than 10,000 units, it will incur a loss. If it sells more than 10,000 units, it will make a profit.

To increase its profitability, Pratibha Ltd. can either increase its unit sales or decrease its variable costs per unit. It can also consider increasing its selling price per unit, but this may affect its sales volume.

In conclusion, knowing the break-even point is crucial for businesses to make informed decisions about their pricing and production strategies.