Question

In the context of a security alarm manufacturer with fixed and variable costs, how many devices need to be sold to cover the fixed costs when the fixed cost is Rs. 180,000,000, the variable cost is Rs. 2,700, and the selling price is Rs. 4,500?

Answer 1

The security alarm manufacturer needs to sell 100,000 units to cover the fixed costs, calculated using the break-even point formula which is Fixed Costs divided by the difference between Selling Price and Variable Cost per unit.

Step-by-step explanation:

To determine how many security alarm devices need to be sold to cover the fixed costs, one must calculate the break-even point.

The formula for the break-even point in units is given by:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost per unit)

Using the given values:

1. Fixed Costs = Rs. 180,000,000
2. Selling Price = Rs. 4,500
3. Variable Cost per unit = Rs. 2,700

Therefore:

Break-even point (units) = 180,000,000 / (4,500 - 2,700)

Break-even point (units) = 180,000,000 / 1,800

Break-even point (units) = 100,000 units

The manufacturer needs to sell 100,000 security alarm devices to cover their fixed costs of Rs. 180,000,000.