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CS Executive · Corporate Accounting and Financial Management · Operational Approach to Financial Decision

Sharma Textiles sells a product at Rs 50 per unit with variable cost of Rs 30 per unit. Fixed costs are Rs 2,00,000 per year. What is the break-even point in units?

The break-even point is 10,000 units. Contribution per unit is Rs 20 (50 minus 30), and dividing fixed costs of Rs 2,00,000 by this contribution gives 10,000 units, at which total contribution exactly recovers fixed costs and profit is zero.

  1. A4,000 units
  2. B10,000 unitsCorrect
  3. C6,667 units
  4. D8,000 units

Explanation

Contribution per unit = 50 - 30 = Rs 20. Break-even units = 2,00,000 / 20 = 10,000 units. Check: 10,000 x 20 = Rs 2,00,000, equal to fixed cost. Using selling price less nothing (2,00,000/50) gives 4,000, which ignores variable cost.

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