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Evaluate break even point:
A vehicle manufacturing firm purchase axle from a shaft manufacturing industry at Rs.100 each. If it establishes the essential apparatus for the production of the axle in its plant a fixed cost of Rs.100, 000 per year and a variable cost of Rs. 40 is incurred. What volume is essential in order to recover the fixed cost?
The problem is simply a problem of finding the break even point of the process concerned. At the break even point margin between selling price and variable costs recovers the fixed cost incurred in the manufacture of the product.
Or,
B = 100, 000 / (100 - 40)
= 1667 units
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