Question : If the fixed cost of the factory producing candles is Rs. 20,000 the selling price is Rs. 30 per dozen candles and the variable cost is Rs. 1.5 per candle, what is the break-even quantity?
Option 1: 20000
Option 2: 10000
Option 3: 15000
Option 4: 12000
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Correct Answer: 20000
Solution : The correct option is : 20000
Break-even quantity = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
In this case:
Fixed Costs = Rs. 20,000
Selling Price per unit = Rs. 30 per dozen candles = Rs. 30 / 12 = Rs. 2.5 per candle
Variable Cost per unit = Rs. 1.5 per candle
Break-even quantity = 20,000 / (2.5 - 1.5)
Break-even quantity = 20,000 / 1
Break-even quantity = 20,000
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