Company X has estimated their demand levels of their product A

Selling price per unit is Rs. 8/- with marginal cost = Rs. 4.80/- and fixed cost = Rs. 42000/-

Calculate probability of company’s

a) Break even

b) Makes profit of minimum Rs.20000/-

Solution

The solution is explained below −

a) Break even

Calculated contribution cost

Contribution cost= sales cost – marginal cost

Contribution cost= 8 – 4.80

Contribution cost= 3.20/-

Breakeven point = fixed cost / contribution cost

= 42000/3.20

= 13125 units (app)

Probability of sales more than or equal to 8077 units

Probability of sales = (0.15+0.18+0.22+0.24+0.26) => 0.95 => 95%

b) Makes profit of minimum Rs.20000/-

Total contribution = (fixed cost) + profit
=> 42000 + 20000
=> 62000
- Sales = total contribution / contribution cost
=> 62000/3.20
=> 19375 units
- Probability for 19375 units
19375 is near to 20000 units, so we have to take probability of 0.22 with appropriate calculations
=> (0.22 /20000)*19375
=> 21.31%