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Break Even Analysis: Presented by

This document discusses break even analysis, which determines the sales volume or revenue needed to cover total costs. It defines break even analysis and break even point. It describes the assumptions and methods to calculate break even, including using a break even chart or algebraic method. An example problem calculates the break even point in units and dollars for a company. The document also outlines the uses, limitations, and conclusion of break even analysis.

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Gaurav Kumar
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© Attribution Non-Commercial (BY-NC)
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3K views

Break Even Analysis: Presented by

This document discusses break even analysis, which determines the sales volume or revenue needed to cover total costs. It defines break even analysis and break even point. It describes the assumptions and methods to calculate break even, including using a break even chart or algebraic method. An example problem calculates the break even point in units and dollars for a company. The document also outlines the uses, limitations, and conclusion of break even analysis.

Uploaded by

Gaurav Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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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

50

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250

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800
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

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