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The Breakeven Sales Amount

Autor:   •  November 27, 2011  •  Essay  •  406 Words (2 Pages)  •  1,295 Views

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So the breakeven sales amount comes out to be 39,127 units i.e almost 6 month in time if we produce at full capacity and the market agrees to take our product. The breakeven sales amount comes out to be 14,868,596.92 Rs.

Because it will be new product in the states which we are targeting we assume the demand to be 2666 units per month. The total life of a product is 5 years. To be conservative we take depreciation to be @ 30 % from straight line method. Our profit for the first year comes out to be 1167138 Rs in 1st year and 1283000Rs in the 2nd year and 1412237 Rs in Year 3. So by now we have covered 90% of the fixed costs and are still profitable. For the next year and thereafter we would have only the variable cost to take care of. This shows tremendous signs of a huge profit opportunity.

We have estimated that we will be requiring 2 acres of land and we will base our production facilities in Ranchi. The area chosen is Ranchi Industrial Area which would cost us around 2000000 Rs. The maximum production that can be made with this amount of land is 6666 units per month i.e 80000 units annually. The assumed selling price for the product is 380 Rs based on the amount for which the unit has been selling in other states. Fixed costs include the land cost, the plant setting cost and the license fees. The total fixed cost comes out to be 3066180 Rs.

The bank would give us a loan of maximum 80 %of fixed cost plus the variable cost.

The variable part of costs consists of one filter and a container. The cost of a filter is assumed to be 155 Rs by looking at the market prices and the cost of a filter is 15 Rs. Wee would need an average of 7 man workforce. Looking at these estimates and other miscellaneous expenditure such as telephone, utilities the total variable cost comes out to be 2010712 in total

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