Corporate Finance Q116

116Soomros now sells 1 million units at Rs.3,972 per unit. Fixed operating costs are Rs.1,960 million and variable operating costs are Rs.1,250 per unit. If the company pays Rs.376 million in interest, the levels of sales at the operating breakeven and the level of sales at the breakeven points are, respectively:

Option : A
Explanation : Operating breakeven units = F / (P - V) = (Rs.1,960 million) / (Rs.3,972 - Rs.1,250)
= 720,058.7803 units Operating breakeven sales
= Rs.3,972 * 720,058.7803 units = Rs.2,860,073,475
or
Operating breakeven sales = (Rs.1,960 million) / [1 - (Rs.1,250 /Rs.3,972)] = Rs.2,860,073,475
Total breakeven = (Rs.1,960 million + Rs.376 million) / (Rs.3,972 - Rs.1,250) = (Rs.2,336 million ) / 2,722 = 858,192.5055
Breakeven sales = Rs.3,972 * 858,192.5055 units = Rs.3,408,740,632
or
Breakeven sales = (Rs.2,336 million) / [1- (Rs.1,250 / Rs.3,972)]
= Rs.3,408,740,632.

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