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If the fixed costs of a factory producing candles is Rs 20,000, selling price is Rs 30 per dozen candles and variable cost is Rs 1.5 per candle, what is the break-even quantity?
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- 20000
- 10000
- 15000
- 12000
Correct Option: A
Given , Fixed costs ( FC ) = Rs. 20000 , Variable costs = Rs 1.5 per candle
As we know that ,
Break - even quantity is the number of incremental units that the firm needs to sell to cover the cost of a marketing program or other type of investment.
It is given by the formula :
BEQ = FC / (P-VC) , Where BEQ = Break-even quantity , FC = Total fixed costs , P = Average price per unit, and VC = Variable costs per unit.
According to the question,
Price per unit = 30/12 = Rs. 2.5
Putting all values in above given formula , we get
∴ Break - even quantity = 20000 / (2.5-1.5) = 20000 / 1 = Rs. 20,000
