Aptitude Discussion

**Common Information**

KK, an aspiring entrepreneur wanted to set up a pen drive manufacturing unit. Since the technology was changing very fast, he wanted to carefully the demand and the likely profits before investing.

The market survey indicated that he would be able to sell 1 lac units before customers shifted to different gadgets. KK realized that he had to incur two kinds of costs – fixed costs (the costs which do not change, irrespective of the number of units of pen drives produced) and variable costs (= variable cost per unit multiplied by the number of units).

KK expected fixed cost to be Rs. 40 lac and variable cost to be Rs. 100 per unit. He expected each pen drive to be sold at Rs. 200

Q. |
What would be the break-even point (defined as no profit, no loss situation) for KK’s factory in term of sales? |

✔ A. |
Rs 80 lac |

✖ B. |
Rs 100 lac |

✖ C. |
Rs 120 lac |

✖ D. |
Rs 140 lac |

**Solution:**

Option(**A**) is correct

Let the break-even point be attained on the sale of $x$ units.

Therefore for break-even point,

$\text{Total Cost}$ $=\text{Total Sales}$

$\Rightarrow 4000000+100x=200x$

Or, $x=40000$

So, the total sales = $40000\times$ Rs. $200 = \textbf{Rs. 80 lac}$

**PULOK KHAN**

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**PULOK KHAN**

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I can't understand why option D can't be correct answer.

we know, break even point means:

$\text{selling price - cost price} = 0$

Here given,

Fixed cost = 40,00000

total units = 1 lac

CPU( variable cost) = RS 100

Total cost $= 40,00000 + (100 *100000)$

$=1,40,00000$

How have you taken 1 lac units as a break even point?

First, you need to get how many units will be sold for no profit or no loss situation and that comes out to be 40k, not 100k.

Thank you so much, now I understand this.