- 2065 Kartik · 4 marks
BEP volume; effect of cost changes
Short answer
Original break-even volume is 8,000 units. With fixed cost up 10% and variable cost down 20%, the new BEP is 6,600 units, a decrease of 1,400 units (17.5%).
Find BEP volume for the following project: fixed cost = Rs. 24 lakh, selling price = Rs. 800 per unit, variable cost = Rs. 500 per unit. What would be the effect on BEP when fixed cost increases by 10% and variable cost decreases by 20%?
Data
FC = Rs 24 lakh = Rs 2,400,000; p = Rs 800; v = Rs 500.
Original break-even volume
Contribution = 800 − 500 = Rs 300 per unit Q* = 2,400,000 / 300 = 8,000 units (sales Rs 6.4 million)
After the changes
- FC increases by 10%: 2,400,000 × 1.10 = Rs 2,640,000
- v decreases by 20%: 500 × 0.80 = Rs 400, so contribution = 800 − 400 = Rs 400
- New BEP = 2,640,000 / 400 = 6,600 units
Effect
The break-even falls by 8,000 − 6,600 = 1,400 units, i.e. 1,400 / 8,000 = 17.5% reduction. The higher fixed cost alone would raise BEP to 8,800 units, but the saving of Rs 100 per unit in variable cost more than offsets it.
Answer: BEP = 8,000 units; after the changes BEP = 6,600 units (17.5% lower).
✓ Answer checked by Claude Opus 5.5 (high effort)
Related questions
- BEP volume and effect of price rise · Engineering Economics, chapter 1
- Silver: states per unit volume vs atoms · Electrical Engineering Material, chapter 2 · asked 2×
- Dividend per ordinary share, 500 shares, tax 20% · Project Engineering, chapter 6
- Progressive wave energy per unit volume · Engineering Physics, chapter 2
- Valuation of a cinema hall (land Rs 15 lakh) · Construction Management, chapter 13 · asked 2×