BY:

RITIKA SIKKA (12BSP1595) RENUKA GANDHI (12BSP0999)

Question A book pubisher has a fixed cost of Rs 3,00,000 and variable cost per book of Rs 8. The book sells for Rs 23 per copy.

a) How many books must be sold to break even?

At break even point TR=TC TR= 23 x Q TC= 3,00,000 + (8 x Q) So, at break even point 23 x Q = 3,00,000 + (8 x Q) Q = 20,000

b) If the fixed cost increased, would the new break even point be higher or lower?
Now suppose new fixed cost is 4,50,000 So at break even we have, 23 x Q = 4,50,000 + (8 x Q)

Q = 30,000
Thus, with increase in fixed cost break even point will be higher.

c) If the variable cost per unit decreased, would the new break even point be higher or lower? Now suppose variable cost decreased to Rs 7 per book So, at break even point we have, 23 x Q = 3,00,000 + (7 x Q) Q = 18750 Thus,with decrease in variable cost break even point in lower.

Question 2) Aldo redondo drives his own car on company business. His employer reimburses him for such travel at rate of Rs 40 per mile. Aldo estimates that his fixed cost per year such as travel, insurance, and depriciation are $ 2000. The direct or variable cost such as gas, oil, and maintenance average about Rs 15 per mile. How many miles must he drive to break even?

At break even point we have 40x = 2,000 + 15x

x = 2,000/25
x = 80

Question:
Suppose a manufacturer has identified the following options for obtaining a machined part: 1. It can buy the part at Rs.200 per unit (including materials); 2. It can make the part on a numerically controlled semiautomatic lathe at Rs.75 per unit (including materials); 3. It can make the part on a machining centre at Rs.15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semi-automatic lathe costs Rs.80,000; and a machining centre costs Rs.2,00,000. The total cost for each option is Purchase cost = Rs.200 x Demand Produce-using-lathe cost = Rs.80000 + Rs.75 x Demand Produce-using-machining-centre cost = 2,00,000+ 15 x Demand

Solution:
The break-even point A calculation is: Rs.80,000 + Rs.75 x Demand=Rs.2,00,000 + Rs.15*Demand Demand(point A)= 1,20,000/60=2000 units

The break-even point B calculation is:

Rs.200*Demand=Rs.80000 + Rs75*Demand Demand(point B)=80,000/125=640 units