Answer to Question #191568 in Macroeconomics for Noxot

Question

A bakery shop sells fresh baked bread from 5 a.m. until 3 p.m. every

day. Any bread not sold by the end of the day is thrown away. The

bread packet cost Rs.8 to produce and the bakery is selling a dozen

bread is at Rs.10.00.Since this shop does not sell old bread the next

day, what minimum price the bakery should charge if he still has 10

dozen left at 2:30 p.m.?

Answer 1

Solution:

The minimum price to be charged is at the break-even point.

Break even point = Fixed costs / Contribution margin

Bread packet cost (Variable cost) = Rs.8

Selling price = Rs.10

Fixed cost = 0

Break-even point = 10 – 8 = Rs.2

Therefore, the bakery should sell the remaining loaves of bread at a minimum price of Rs.2.

At that price, the bakery would be able to cover its costs without encountering any losses rather than throwing them away, which will cost Rs.8 per packet of bread. The bakery will be able to recover its production costs by selling at that price.