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Cost, revenue, profit and break-even sheet
Essay frame

A bakery sells cakes at Rs. 1,500. Variable cost is Rs. 900 a cake and fixed cost Rs. 360,000 a month. (a) Write C(x), R(x) and P(x). (b) Find the break-even point in cakes and rupees. (c) Find the profit on 800 cakes. (d) How many cakes give a profit of Rs. 150,000? (e) Find the margin of safety at 800 cakes.

How to lay out the answer. Follow the frame, then write it in your own words.

  1. 1 · Model the costs and revenue. C(x) = 360,000 + 900x; R(x) = 1,500x; P(x) = 600x − 360,000.
  2. 2 · Break-even. 600x = 360,000, so x = 600 cakes; revenue 600 × 1,500 = Rs. 900,000.
  3. 3 · Draw the break-even chart. [Chart: cost line from 360,000, revenue line from 0, crossing at (600, 900,000); loss and profit areas shaded]
  4. 4 · Profit at 800. P(800) = 480,000 − 360,000 = Rs. 120,000.
  5. 5 · Target profit. (360,000 + 150,000) ÷ 600 = 850 cakes.
  6. 6 · Margin of safety. 800 − 600 = 200 cakes, or 25% of sales.
  7. 7 · Business link. The owner knows sales can fall a quarter before the bakery makes a loss.