Question

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 is able to sell only 1,200 out of 1,500 watches he has made in the season, then he has made a profit of

• A. Rs. 90,000
• B. Rs. 75,000
• C. Rs. 45,000
• D. Rs. 60,000

Hint:

Always break profit/loss questions into fixed cost, variable cost, and revenue parts.

Answer 1

The Correct Option is B

Step 1: Total number of watches produced = 1,500.
Step 2: Cost of producing each watch = Rs. 150
Step 3: Total variable cost = 150 × 1,500 = Rs. 2,25,000
Step 4: Fixed overheads (independent of production count) = Rs. 30,000
Step 5: Total cost = Rs. 2,25,000 + Rs. 30,000 = Rs. 2,55,000
Step 6: Number of watches sold at Rs. 250 = 1,200
Step 7: Revenue from 1,200 watches = 1,200 × 250 = Rs. 3,00,000
Step 8: Remaining watches = 1,500 − 1,200 = 300
Step 9: Revenue from 300 watches sold at Rs. 100 = 300 × 100 = Rs. 30,000
Step 10: Total revenue = 3,00,000 + 30,000 = Rs. 3,30,000
Step 11: Profit = Revenue − Total cost = 3,30,000 − 2,55,000 = Rs. 75,000