Fundamentals of Financial Management, Third Edition

SOLVED NUMERICAL PROBLEMS

1. Find the BEP of production in terms of unit and in terms of value if the price of the product is Rs 250 per unit; variable cost is Rs 150 per unit and the fixed cost is Rs 1,50,000.

   Solution

   In terms of unit:

   BEP = FC/(SP – VC)

        = 1,50,000/(250 – 150) =1,500 units

   In terms of value:

   BEP = FC/MC%

   MC% = (SP – VC)/SP

          = Rs (250 – 150)/ 250 = 0.40 = 40%

          = Rs 1,50,000/0.40 = Rs 3,75,000

    

2. If the product’s demand is price-inelastic, the firm raises the price of the product from Rs 250 to Rs 300 with the same variable cost of Rs 150 and the unchanged fixed cost of Rs 1,50,000. Will the BEP change from that when it remains unchanged?

   Solution

   BEP with an increase in SP:

   Rs 1,50,000/(300 – 150) = 1,000 units ...