BREAK EVEN

ANALYSIS
PRESENTED BY:
Aditya Agarwal
Dhingra Mohit
Nischinth Bharadwaj
Sindhu Chandra
Shweta Madaan
K.Vyshali
 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
determine how much sales volume
your business needs to start making
 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 fixed over 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.
METHODS TO CALCULATE BEP
• Break even chart
• Algebraic method
BREAK EVEN CHART
NON-LINEAR CHART
 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 cost
P=price
AVC= average variable cost
 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
 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
 Breakeven Analysis
$12,000

$10,000
COST-VOLUME-PROFIT

$8,000

$6,000

$4,000

$2,000

$0
0

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NET UNITS (000)
 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.
 MANAGERIAL USES
• Safety Margin Decisions
Safety margin=[(sales-
BEP)/sales]*100
• Target Profit

• Technique of forecasting
 LIMITATIONS
• Adjustments in factor prices
• Unrealistic assumptions
• Static
• Applicable only for proper managerial
accounting techniques
• Selling costs
 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.
THANK YOU