Question

A factory produces a small electronic gadget, If the factory has fixed monthly overheads of AED 5000 and the variable cost is AED 15 per unit. The selling price for each unit is AED 20, if the factory produces 500 units. If the factory is losing money what is the amount that will make the factory have zero loss?

Answer 1

When a factory makes zero loss is called the breakeven point. It is the point at which total cost and total revenue are equal. There is no net loss or gain. In short, all costs that must be paid are paid, and there is neither profit nor loss.

To know the breakeven point here, let us first calculate the Total Cost and Total Reveue

Total Cost = Fixed Cost + Variable Cost

Fixed Cost = Fixed monthly overheads = AED 5000

Variable Cost = AED 15 = 15x (where x is the number of units produced)

Total Cost = 5000 + 15x

Total Revenue = Price x Quantity

Selling Price = AED 20 (as given in the question)

Total Revenue = 20x (where x is the number of electronic gadgets sold)

Putting Total Cost = Total Revenue

5000 + 15x = 20x

Solving for x, x= 1000

Putting x in the Total Revenue = 20*1000 = AED 20,000

Hence an amount of AED 20,000 will make the factory have zero loss