22. Break-even Analysis and Marginal Costing

Try these first

1. 1.

   Define Break-even Point.

   Hint

   What happens when a business covers all its expenses?

2. 2.

   What do fixed costs represent?

   Hint

   Think about rent or salaries.

3. 3.

   What is the Break-even Point?

   • A point of profit
   • A point where total revenue equals total cost
   • A measure of fixed costs

   Hint

   Think about when a company is making no money or losing money.

4. 4.

   True or False: Fixed costs change with production levels.

   • True
   • False

   Hint

   Think of rent; does it change if you manufacture more or less?

5. 5.

   A sushi restaurant incurs fixed costs of ₹80,000 per month. The variable cost to prepare a single sushi plate is ₹200, and the selling price is ₹500. Calculate the Break-even Point in units and the Margin of Safety if the restaurant sells 1,000 plates in a month.

   Hint

   Transform costs into quantities; think about their implications on quantity sold.

6. 6.

   A tech startup decides to launch a new app with fixed costs of ₹120,000 and variable costs of ₹150 per download. The app will sell for ₹300. Calculate the BEP in ₹, and discuss how the Margin of Safety would impact their pricing strategy.

   Hint

   How much do they need to bring in to start generating profit?