Question

Q.3:

a. A company is manufacturing product X and the selling price is $5,000, while the variable cost for each unit is $2000, meanwhile the fixed cost of the operation will be $300,000. Calculate the break-even in units (Write all formulas).

b. Define and discuss the “Break-even concept”

Answer 1

Answer- (a)

Break even in units= Fixed cost ÷ (selling price per unit - variable cost per unit) = 3,00,000÷(5000-2000) = 3,00,000÷3000= 100.

Answer- (b) Simply, It is a no profit no loss point. It is the point at which total cost and total revenue are same (even). At this point there's no profit or loss because opportunity costs have been paid and capital has received the risk adjusted and expected return. All costs are paid which must be paid and therefore there is no profit or loss.