CAT 1996 — QA Question 13
Direction: Answer the questions based on the following information.
A watch dealer incurs an expense of Rs. 150 for producing every watch. He also incurs an additional expenditure of Rs. 30,000, which is independent of the number of watches produced. If he is able to sell a watch during the season, he sells it for Rs. 250. If he fails to do so, he has to sell each watch for Rs. 100.
If he produces 1,500 watches, what is the number of watches that he must sell during the season in order to break-even, given that he is able to sell all the watches produced?
Answer & solution
- A
500
700
- C
800
- D
1,000
From the previous solution, we can see that the total expense incurred by him in manufacturing 1,500 watches = Rs.2,55,000.
In order to break-even, he has to make a minimum revenue in order to recover his expenditure.
He gets Rs. 250 per watch sold and Rs. 100 on every watch not sold.
Let him sell x watches to break-even.
So our equation will be 250x + 100(1500 – x) = 255000.
Solving this, we get x = 700 watches.
Hence, option (b).
[Note: Do not be confused by the statement "he is able to sell all the watches". This is to tell you that if required to bread even he would be able to sell all watches.]