Break - even

analysis
PRESENTED BY “GROUP BY GROUP 10
10”
AMRITA HALDAR
DINESH KUMAR. B
SAGAR
SOWJANYA.P
SUNIL. R. KAUSHIK
 Break Even Analysis
It is the relationship between the volume
and cost of production on the one hand and
revenue and profit which is obtained from
the sales on the other hand .
 According to Martz & Frank:
A Break Even Analysis indicates at what
level cost and revenue are in equilibrium
point.

 Break Even Point:

The point where total revenue is equal to
the total cost
 P
TR
PROFI
T
COST , REVENUE, PRICE

BREAK TC
EVEN
POINT

VARIABLE
COST

LOS FC
S

FIXED
COST
0
Q1 Q
 Consider only fixed cost and variable cost and
ignoring semi variable cost.
 Sale price of the product is constant thus giving
linearity property to the total revenue curve.
 It assumes constant rate of increase in variable
cost thereby imparting linearity to total cost
curve.
 No improvement in technology and labour
efficiency.
 No any addition and subtraction in inventory.
 TC
TC , TR

B2 TR

B1

TFC

0
Q1 Q3 Q2 OUTPUT

PROFIT CURVE
 TR1 TR TC1
P

TC
BEP1

BEP
FC1

FC

0
Q2 Q1 Q
 A break even analysis can also be
presented algebraically .At the break even
point:
TR = TC
TR = P*Q
TC = TFC+TVC
So, P*Q = TFC+TVC
P*Q-AVC*Q = TFC
Q(P-AVC) = TFC
Q = TFC
P-AVC
 It is the difference between receipts(TR) and variable cost(TVC).

TR

Profit
TC
Cost and
Revenue

FC
BEP
n
tio VC
u
t rib
n
Co

0
Q Output
• EXAMPLE
if TFC = Rs. 1000
AVC = Rs. 10/Unit
Price = Rs. 20/Unit
Contribution margin = 20 – 10
= Rs. 10
To reach B.E.F
Quantity sold = TFC
Contribution margin
= 1000/10
= 100 Units
 P

Fixed Cost and

Contribution Line
Contribution

Profit

FC
Loss
Fixed
Cost
Output
Q
 Margin of safety is the excess of budgeted
or actual sales over the break-even sales
volume.
100

PROFIT
TR, TC (THOUSANDS)(Rs)

75

50 (48000)
MARGIN OF SAFETY

25

(52000)
0
25 50 75 100
SALES (THOUSANDS)(Rs)
 It is used to apply the concept of break
even analysis in situations of multi –
product firms.
 P/V Income = sales – variable cost
 P/V ratio = P/V Income x 100

sales
= contribution
Sales
 Profit contribution = P/V income – fixed

cost
 INE
L
FIT
O
PR
BEP
PROFIT

0
SALES
 It helps in determining the optimum level of output.
 Helps in determining the target capacity of the firm
w.r.t the minimum cost of production.
 Plant expansion or contraction are based on break
even analysis.
 Decides which product to be produced and which to
be bought by the firm.
 Impact of changes in prices and cost on the profits
of the firm can be analyzed.
 Fixed costs are constant
 Average variable costs are constant

per unit of output at least in the

range of likely quantities of sales.
 Is only on the supply side analysis ,

i.e. costs only

 Quantity of goods produced is equal

to the quantity of goods sold.