Corporate Finance Q117

117In order to assess the riskiness of two companies in the same industry, Mr. Habitt collected the following information from the latest financial statements and management discussions for Habitt and Machinesque respectively: Number of units produced and sold: 2.7 million and 3.5 million

-Sales price per unit: Rs.2000 each
-Variable cost per unit: Rs.1200 and Rs.1000
-Fixed operating cost: Rs.40 million and Rs.75 million
-Fixed financing expense: Rs.30 million each

Based on this information, the breakeven points for Habitt and Machinesque are closest to:

Option : A
Explanation : For Habitt QBE = (F + C) / (P - V) = (Rs.40million + Rs.30million) / (Rs.2000 – Rs.1200) = 0.0875 million For Machinesque: QBE = (F + C) / (P - V) = (Rs.75million + Rs.30million) / (Rs.2000 – Rs.1000) = 0.105 million.

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