Question

Due to high market demand, a manufacturer decides to introduce a new line of frying pan. By using existing factory space and retraining some employees, fixed costs are estimated at Rs 84000/mo. The components to assemble and test each frying pan are expected to run Rs 450 per unit. If market research shows consumers are willing to pay at leas Rs 690 for this product, find How many units must be made and sold each month to break even ? *​

Answer 1

Given: Due to high market demand, a manufacturer decides to introduce a new line of frying pan. By using existing factory space and retraining some employees, fixed costs are estimated at Rs 84000/mo. The components to assemble and test each frying pan are expected to run Rs 450 per unit. If market research shows consumers are willing to pay at leas Rs 690 for this product.

To find: How many units must be made and sold each month to break even.

Solution: 122 must be made and sold each month to break even.

In order to calculate the number of units that must be sold to break even, the fixed cost of the factory must be divided by the contribution margin per unit. The contribution margin per unit is basically the cost at which each unit will be sold. In the given question, it is Rs. 690.

$units = \frac{84000}{690}$

         $= 121.74$

This means that at least 122 units of the frying pan must be sold per month to break even.

Therefore, 122 must be made and sold each month to break even.