Company A Ltd. records sales of ₹2,200, total fixed costs amounting to ₹570, and variable costs totalling ₹1,540. Out of the variable cost, raw materials consumed are ₹1,100. The company sold 22,000 units. If the cost of raw materials decreases by 2%, what will be the new break-even point (BEP) in units?

Explanation

To calculate the new break-even point, first reduce raw material cost by 2%: 1,100 × 0.98 = ₹1,078. Variable cost reduces by ₹22 (1,100 - 1,078). New variable cost = 1,540 - 22 = ₹1,518. Contribution margin per unit = (Sales - Variable costs) / Units sold = (2,200 - 1,518) / 22,000 = ₹31.91 per unit. Fixed costs remain ₹570. BEP units = Fixed costs / Contribution margin per unit = 570 / 31.91 ≈ 17.86 thousand units or 18,387 units.