---
title: "BEP volume; effect of cost changes"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:bep-volume-24-lakh-fixed"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/bep-volume-24-lakh-fixed
site: BCT Engineering
---

# BEP volume; effect of cost changes

Engineering Economics · Chapter 1: Introduction

- Asked in: 2065 Kartik, 4 marks
- Video: [Cost Volume Profit (CVP) Analysis | Break-Even Analysis | Explained with Example](https://www.youtube.com/watch?v=R8gjp6BCrRI) — Counttuts
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/bep-volume-24-lakh-fixed
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

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%?

## 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%).

## Answer

#### 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).**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. How is break-even volume found?
   A. Fixed cost / (selling price - variable cost per unit)
   B. Fixed cost / selling price
   C. Fixed cost x contribution per unit
   D. Variable cost / (price - fixed cost)
   Answer: A. Break-even volume = FC divided by contribution per unit. (Key point: BEP formula)

2. What is the original BEP?
   A. 3,000 units
   B. 8,000 units (2,400,000 / 300)
   C. 4,800 units
   D. 6,600 units
   Answer: B. Contribution is 800 - 500 = 300, so 2,400,000/300 = 8,000. (Key point: Original BEP)

3. After FC +10% and VC -20%, what is the BEP?
   A. 8,800 units
   B. 8,000 units
   C. 6,600 units (2,640,000 / 400)
   D. 7,333 units
   Answer: C. New FC 2,640,000, contribution 800 - 400 = 400, so 6,600. (Key point: Changed BEP)

4. What is the effect of the changes on BEP?
   A. BEP rises because fixed cost rises
   B. BEP is unchanged
   C. BEP falls by 8%
   D. BEP falls by 1,400 units (17.5%) because the Rs 100 saving per unit outweighs higher fixed cost
   Answer: D. Higher contribution more than offsets the fixed cost increase. (Key point: Effect)

## Related in Engineering Economics

- [BEP volume and effect of price rise](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Abep-volume-60-million-fixed) — Engineering Economics, chapter 1

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