What is breakeven point how it is significant in view of profit generation for an organisation 2) A company manufactures a single product which has the following cost structure based ona production budget of 10,000 units. Materials - 4 kg at Rs.3/kg Rs.12 Direct labour - 5 hours at Rs.7/hour Rs.35 Variable production overheads are recovered at the rate of Rs.8 per direct labour hour. Other costs incurred by the company are: Rs. Factory fixed overheads 120,000 Selling and distribution overheads 160,000 Fixed administration overheads 80,000 The selling and distribution overheads include a variable element due to a distribution cost of Rs.2 per unit. The fixed selling price of the unit is Rs.129. Required: (a) Calculate how many units have to be sold for the company to breakeven. (b) Calculate the sales revenue which would give a net profit of Rs.40, 000. (c) If the company could buy in the units instead of manufacturing them, calculate how much it would be prepared to pay if both: (i) Estimated sales for next year are 9,500 units at Rs.129 each; and (ii) Rs.197, 500 of fixed selling, distribution and administrative overheads would still be incurred even if there is no production (all other fixed overheads would be saved).

Answer rating: 100% (QA)

Breakeven Point The breakeven point is the level of sales at which total revenue equals total costs resulting in neither profit nor loss Its a crucial ... View the full answer