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BREAK EVEN ANALYSIS

PRESENTED BY:

Aditya Agarwal

Dhingra Mohit

Nischinth BharadwajSindhu Chandra

Shweta Madaan

K.Vyshali

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BREAK EVEN ANALYSIS

Definition

A break even analysis indicates at what level

cost and revenue are in equilibrium

Also known as Cost-Volume-Profit[C-V-P]

analysis.

A breakeven analysis is used to determinehow much sales volume your business needs

to start making a profit.

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BREAK EVEN POINT [BEP]

Point of Zero Profit

Cost of the firm = Revenues

ASSUMPTIONS

Sales price of products is assumed constant.

All costs are either perfectly variable or absolutely fixedover the entire period of production.

Volume of production = volume of sales

Assumption of stable product mix. All revenue is perfectly variable with the physical

volume of production.

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METHODS TO CALCULATE BEP

Break even chart

Algebraic method

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BREAK EVEN CHART

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NON-LINEAR CHART

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ALGEBRAIC METHOD

TR=(P)(Q)

TC=TFC+TVC

TC=TFC+AVC(Q)

At break even, TR=TC

QB= TFC/(P-AVC)

Where QB=break-even quantity

TFC= total fixed costP=price

AVC= average variable cost

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BREAK EVEN SALES VALUE

SB=TFC/CONTRIBUTION RATIO

Where TFC=total fixed cost

CONTRIBUTION RATIO= TR-TVC/TR

Where TR=total revenue

TVC=total variable cost

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Problem

A Company has fixed costs of $3000 this period.

Direct labor is $3.25 per unit, and material is $

1.75 per unit. The selling price is $ 12.50 per unit.

Break-even point in dollars and in units(?)

Fixed Cost=$3000

Variable Cost=$5.00(3.25+1.75)

No of Units=50

Unit Price=$12.50

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Breakeven Analysis

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

050

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

NET UNITS (000)

COST-VOLUME

-PROFI

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USES

Helps in determining the optimal level of

output.

Determines the minimum cost for the given

level of output.

Make or buy decisions.

Helps in plant expansion/contraction

decisions.

Finding the selling price which would prove

most profitable to the firm.

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MANAGERIAL USES

Safety Margin Decisions

Safety margin=[(sales-BEP)/sales]*100

Target Profit

Technique of forecasting

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LIMITATIONS

Adjustments in factor prices

Unrealistic assumptions

Static Applicable only for proper managerial

accounting techniques

Selling costs

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CONCLUSION

It is simple, easily understandable and quite

inexpensive.

Focuses attention on fundamental

relationships.

Can be used for various purposes.

Suitable to those industries which are not

subject to fast change in technology and input

prices.

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THANK YOU