A company has fixed costs of Rs. 1,50,000 and variable costs of Rs. 9 per unit. If sales price per unit is Rs. 12 per unit, what is the breakeven sales in Rupees?
Understand the Problem
The question is asking to calculate the breakeven sales in Rupees for a company given its fixed costs, variable costs per unit, and sales price per unit.
Answer
The breakeven sales in Rupees is Rs. 6,00,000.
Answer for screen readers
The breakeven sales in Rupees is Rs. 6,00,000.
Steps to Solve
- Identify the given values
We have the following values:
- Fixed Costs (FC) = Rs. 1,50,000
- Variable Costs per unit (VC) = Rs. 9
- Sales Price per unit (SP) = Rs. 12
- Calculate the Contribution Margin per Unit
The Contribution Margin (CM) per unit is calculated using the formula:
$$ CM = SP - VC $$
Substituting the known values:
$$ CM = 12 - 9 = Rs. 3 $$
- Calculate the Breakeven Point in Units
The breakeven point in units (BEU) is calculated using the formula:
$$ BEU = \frac{FC}{CM} $$
Using the values we have:
$$ BEU = \frac{1,50,000}{3} = 50,000 \text{ units} $$
- Calculate the Breakeven Sales in Rupees
To find the total breakeven sales (BES) in Rupees, we multiply the breakeven units by the sales price per unit:
$$ BES = BEU \times SP $$
Substituting the values:
$$ BES = 50,000 \times 12 = Rs. 6,00,000 $$
The breakeven sales in Rupees is Rs. 6,00,000.
More Information
Breakeven analysis helps businesses understand when they will start making a profit. It's a crucial metric for evaluating the financial viability of a product or service.
Tips
- Forgetting to calculate the Contribution Margin, leading to incorrect breakeven calculations.
- Confusing total fixed costs with variable costs, which can affect the final breakeven point.
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