Discussion
Sales (1,00,000 units) = Rs. 1,00,000
Variable cost (1,00,000 units) = Rs. 40,000
Fixed cost = Rs. 50,000
From the above information, what will be the value of break even sales
Answer: C
The break-even sales are Rs. 83,333. The contribution is sales less variable cost, 1,00,000 - 40,000 = 60,000, so the P/V ratio is 60 per cent. \[\text{BEP} = \frac{\text{Fixed cost}}{\text{P/V}}\] \[= \frac{50{,}000}{0.60} \approx 83{,}333\] Check: at this sales value the contribution is 60 per cent of it, about 50,000, which exactly covers the fixed cost. Rs. 50,000 is the fixed cost itself, and Rs. 1,00,000 is the actual sales, so neither is the break-even point.
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