---
title: "BEP volume and effect of price rise"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:bep-volume-60-million-fixed"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/bep-volume-60-million-fixed
site: BCT Engineering
---

# BEP volume and effect of price rise

Engineering Economics · Chapter 1: Introduction

- Asked in: 2066 Magh, 4 marks
- Video: ["Break - Even Point" Formulas & Problems](https://www.youtube.com/watch?v=Idum--hF73s) — Devika's Commerce & Management Academy
- 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-60-million-fixed
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

Fixed cost = Rs. 60 million, Variable cost/unit = Rs. 50,000, Selling price/unit = Rs. 8,000. Find BEP volume. What would be the effect on profit/loss when selling price increases by 20%?

## Short answer

Assuming corrected selling price Rs 80,000/unit, contribution Rs 30,000. BEP = 60,000,000 ÷ 30,000 = 2,000 units. With 20% price rise to Rs 96,000, new BEP = 60,000,000 ÷ 46,000 ≈ 1,305 units and profit rises by Rs 16,000 per unit.

## Answer

#### Assumption
As printed, the selling price (Rs 8,000) is lower than the variable cost (Rs 50,000), so every unit sold loses money and no break-even exists. The price is taken as a misprint for **Rs 80,000 per unit** (the alternative reading, v = Rs 5,000, is given at the end).

#### Break-even volume
Contribution per unit = p − v = 80,000 − 50,000 = Rs 30,000
Q* = FC / (p − v) = 60,000,000 / 30,000 = **2,000 units**
(Break-even sales = 2,000 × 80,000 = Rs 160 million.)

#### Effect of a 20% price rise
New price p' = 80,000 × 1.20 = Rs 96,000
New contribution = 96,000 − 50,000 = Rs 46,000
New break-even Q' = 60,000,000 / 46,000 = **1,304.3, about 1,305 units**

Effect on profit at any volume Q: profit increases by (96,000 − 80,000) × Q = Rs 16,000 per unit sold. At the old break-even volume of 2,000 units, profit changes from nil to 2,000 × 46,000 − 60,000,000 = **Rs 32 million profit**.

Break-even falls by 695.7 units (34.8%), so the project becomes less risky and more profitable.

**Answer: BEP = 2,000 units; after a 20% price rise BEP = about 1,305 units and profit rises by Rs 16,000 per unit sold (Rs 32 million at 2,000 units).**

If instead v = Rs 5,000 and p = Rs 8,000: BEP = 60,000,000 / 3,000 = 20,000 units; new p = 9,600 gives BEP = 60,000,000 / 4,600 = 13,043 units.

## Check yourself

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

1. Why is the price taken as Rs 80,000?
   A. 20% rise needs it
   B. Fixed cost is too large
   C. As printed, price is below variable cost so no break-even exists
   D. Variable cost is zero
   Answer: C. A negative contribution never recovers fixed cost. (Key point: Misprint)

2. BEP volume is:
   A. 60,000,000 / 80,000 = 750 units
   B. 60,000,000 / 50,000 = 1,200 units
   C. 60,000,000 / 46,000
   D. 60,000,000 / 30,000 = 2,000 units
   Answer: D. Contribution is 80,000 - 50,000. (Key point: BEP)

3. After a 20% price rise, new BEP is:
   A. 60,000,000 / 46,000 = about 1,305 units
   B. 2,000 x 1.2 = 2,400 units
   C. 2,000 / 1.2 = 1,667 units
   D. 60,000,000 / 96,000
   Answer: A. New contribution is 96,000 - 50,000 = 46,000. (Key point: After rise)

4. Profit rises by what per unit sold?
   A. Rs 30,000
   B. Rs 16,000, the price increase
   C. Rs 20,000
   D. Rs 46,000
   Answer: B. Variable cost is unchanged. (Key point: Profit effect)

## Related in Engineering Economics

- [BEP volume; effect of cost changes](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Abep-volume-24-lakh-fixed) — Engineering Economics, chapter 1
- [Break-even units and output for desired profit](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Abreakeven-units-profit-50000) — Engineering Economics, chapter 1

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