Break-Even Point Calculation for X Ltd Sales

The question asks to calculate the Break-Even Point (BEP) in terms of sales amount for X Ltd. The BEP is the level of sales where total revenue equals total costs, resulting in zero profit.

Break-Even Point Formula

The formula for Break-Even Point in Sales Amount is:

$BEP_{Sales Amount} = \frac{Fixed Costs}{Contribution Margin Ratio}$

We need to calculate the Contribution Margin Ratio first.

Step 1: Calculate Contribution Margin per Unit

Contribution Margin (CM) per unit is the difference between the selling price per unit and the variable cost per unit.

• Selling Price per unit = ₹ 20
• Variable Cost per unit = ₹ 14
• $CM_{unit} = Selling Price_{unit} - Variable Cost_{unit}$
• $CM_{unit} = ₹ 20 - ₹ 14 = ₹ 6$

Step 2: Calculate Contribution Margin Ratio

The Contribution Margin Ratio is the contribution margin per unit divided by the selling price per unit. It represents the percentage of each sales rupee that contributes to covering fixed costs and generating profit.

• $CM Ratio = \frac{CM_{unit}}{Selling Price_{unit}}$
• $CM Ratio = \frac{₹ 6}{₹ 20} = 0.30$ or $30\%$

Step 3: Calculate Break-Even Point in Sales Amount

Now, use the BEP formula with the calculated CM Ratio and the given Fixed Costs.

• Fixed Costs = ₹ 7,92,000
• CM Ratio = 0.30
• $BEP_{Sales Amount} = \frac{₹ 7,92,000}{0.30}$
• $BEP_{Sales Amount} = ₹ 26,40,000$

Conclusion

The Break-Even Point for X Ltd, in terms of sales amount, is ₹ 26,40,000. This matches Option 4.