3 Marks Questions
Easy Level
Question:
A company produces 100 units of a product with a total cost of ₹10,000. The variable cost per unit is ₹60. Calculate the marginal cost if the company produces 101 units.Solution:
Marginal cost = Variable cost per unit = ₹60.
Question:
A firm has fixed costs of ₹50,000. The selling price per unit is ₹100, and the variable cost per unit is ₹60. What is the break-even point in units?Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹50,000 / (₹100 - ₹60) = 1,250 units.
Medium Level
Question:
A company produces 200 units with a total cost of ₹15,000, including ₹5,000 as fixed costs. What will be the marginal cost if the company increases production to 201 units, assuming variable cost per unit remains constant?Solution:
Marginal cost = Total cost at 201 units - Total cost at 200 units
Variable cost per unit = (₹15,000 - ₹5,000) / 200 = ₹50
Marginal cost = ₹50.
Question:
A business incurs fixed costs of ₹1,00,000. The variable cost per unit is ₹40, and the selling price per unit is ₹80. Calculate the number of units required to break even.Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹1,00,000 / (₹80 - ₹40) = 2,500 units.
Difficult Level
Question:
XYZ Ltd. produces 500 units at a total cost of ₹30,000, including ₹10,000 fixed costs. Due to an increase in variable costs, the marginal cost per unit increased by 10%. If the variable cost per unit was originally ₹40, calculate the new marginal cost.Solution:
Old variable cost per unit = (₹30,000 - ₹10,000) / 500 = ₹40
New marginal cost = ₹40 + (₹40 × 10%) = ₹44.
Question:
A company has fixed costs of ₹70,000. The selling price per unit is ₹120, and the variable cost per unit is ₹80. What will be the profit if the company sells 2,000 units?Solution:
Profit = (Selling Price - Variable Cost) × Units Sold - Fixed Costs
= (₹120 - ₹80) × 2,000 - ₹70,000
= ₹40 × 2,000 - ₹70,000
= ₹80,000 - ₹70,000 = ₹10,000 profit.
Easy Level
Question:
A company has fixed costs of ₹80,000. The variable cost per unit is ₹50, and the selling price per unit is ₹100. Calculate the break-even point in both units and sales value. Also, calculate the profit if 1,800 units are sold.Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹80,000 / (₹100 - ₹50) = 1,600 units.
Break-even point (sales value) = 1,600 units × ₹100 = ₹1,60,000.
Profit at 1,800 units = (₹100 - ₹50) × 1,800 - ₹80,000 = ₹10,000.
Question:
A company sells a product at ₹150 per unit. The fixed costs are ₹60,000, and the variable cost per unit is ₹90. Calculate the break-even point in units. Also, determine the sales needed to achieve a profit of ₹30,000.Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹60,000 / (₹150 - ₹90) = 1,000 units.
To achieve ₹30,000 profit:
Required sales = (Fixed Costs + Desired Profit) / Contribution per unit
= (₹60,000 + ₹30,000) / (₹150 - ₹90)
= ₹90,000 / ₹60 = 1,500 units.
Medium Level
Question:
A company’s fixed costs are ₹1,50,000. The selling price per unit is ₹500, and the variable cost per unit is ₹300. Calculate the break-even point in both units and sales value. If the company wants to earn a profit of ₹50,000, how many units should be sold?Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹1,50,000 / (₹500 - ₹300) = 750 units.
Break-even point (sales value) = 750 units × ₹500 = ₹3,75,000.
To earn a profit of ₹50,000:
Units required = (Fixed Costs + Desired Profit) / Contribution per unit
= (₹1,50,000 + ₹50,000) / ₹200 = 1,000 units.
Question:
A business has fixed costs of ₹90,000 and sells a product for ₹300 per unit. The variable cost per unit is ₹150. Calculate:
(i) The break-even point in units.
(ii) The profit if 700 units are sold.Solution:
(i) Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹90,000 / (₹300 - ₹150) = 600 units.
(ii) Profit at 700 units = (Selling Price - Variable Cost) × Units Sold - Fixed Costs
= (₹300 - ₹150) × 700 - ₹90,000 = ₹1,05,000 - ₹90,000 = ₹15,000.
Difficult Level
Question:
ABC Ltd. produces 500 units at a total cost of ₹1,20,000. The fixed costs are ₹40,000. The company expects to increase production to 510 units, with variable costs increasing by ₹10 per unit. Calculate the new total cost and the marginal cost per unit for the additional production.Solution:
Variable cost per unit for 500 units = (₹1,20,000 - ₹40,000) / 500 = ₹160
New variable cost per unit = ₹160 + ₹10 = ₹170
Total cost for 510 units = Fixed Costs + (Variable Cost × 510 units)
= ₹40,000 + (₹170 × 510) = ₹40,000 + ₹86,700 = ₹1,26,700
Marginal cost for 10 additional units = ₹1,26,700 - ₹1,20,000 = ₹6,700
Marginal cost per unit = ₹6,700 / 10 = ₹670.
Question:
A company has fixed costs of ₹2,50,000. The selling price per unit is ₹1,000, and the variable cost per unit is ₹600. Calculate the break-even point in units. If the company desires a profit of ₹1,00,000, how many units must be sold? Additionally, determine the margin of safety if actual sales are ₹10,00,000.Solution:
Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost)
= ₹2,50,000 / (₹1,000 - ₹600) = 625 units.
For ₹1,00,000 profit:
Units required = (Fixed Costs + Desired Profit) / Contribution per unit
= (₹2,50,000 + ₹1,00,000) / (₹1,000 - ₹600)
= ₹3,50,000 / ₹400 = 875 units.
Margin of safety = (Actual Sales - Break-even Sales) / Actual Sales × 100
= (₹10,00,000 - ₹6,25,000) / ₹10,00,000 × 100
= ₹3,75,000 / ₹10,00,000 × 100 = 37.5%.
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