Assignment

SME Management
(MGT601)

ID:

Scenario:
A company named Crimson is selling fast moving consumer goods like shampoos and
hair- conditioner. Now they are planning to launch facial soaps. In the planning phase, the
company is making all the calculations. In this regard, they intend to calculate the break-
even point so that they can know how many units must be sold to contribute enough money
to cover fixed costs. For simplification let’s say the company has fixed cost of Rs.18000/
month and it can make a product unit for Rs70 in terms of variable cost and sell it for Rs.
100. Here the company intends to make a profit of Rs. 3000.

Requirement:

Calculate the break-even point and also break-even profit point.

Answer:

As we know that

Break-even point =Fixed cost/(selling Price - unit variable cost)

Now,

Break even = 18,000/(100-70)

=18,000/30
= 600 units
Sale of these number of units enables SME to cover its fixed cost

Break-even profit point

Break even profit point= (18,000+3000)/(100-30)

Break even profit point =21,000/30
Break even profit point =700

Units Business have to sell 700 units to earn the profit of Rs.3000