If the fixed cost of production goes up by Rs. 40, then what is the minimum number of units that need to be manufactured to make sure that there is no loss?
Explanation:
Profit = Revenue – Variable Cost – Fixed Cost = Revenue – (Variable Cost + Fixed Cost). If we consider (Fixed Cost + Variable cost) as total cost, then as long as the revenue is higher than the total cost, there is a profit. In case the revenue is less than the total cost there would be a loss. If we are to compile the data given in the question it would be as follows:
Referring to the above table, we can see that if the fixed cost increases by Rs. 40, the profit will reduce by Rs. 40. Hence, we can see that at 10 units he will make a loss of Rs. 30 and at 20 units he will make a profit of Rs. 10. Hence, the answer has to be between (b) and (c). Let us verify for them:
Thus, we see that to make sure there is no loss, he has to manufacture 19 units.
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