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Break even analysis is a method of studying the relationship among sales revenue, variable cost and fixed cost to determine the level of operation of which all the cost are equal to its sales revenue and there is no profit or loss situation.
BreakBreak-even Point
Break even point is a point where a firm neither earns any profit nor incurs any loss. That is why it is also known as critical point, evaluation point, equilibrium point, balancing point or zero profit and loss point.
Break even point (of output) = (fixed cost) / (contribution per unit) Where, Contribution=selling cost-variable cost Fixed cost= Contribution- profit
Costs/Revenue
TR
TC VC
Break-even Point FC
Output/Sales
1.Simple break even chart. 2.Contribution break even chart. 3.Cash break even chart. 4.Control break even chart. 5.Analysis break even chart.
The following figure relates to one years working at 100% capacity level in a manufacturing business: Rs Fixed overhead Sales Variable overhead Direct wages Direct materials 60,000 5,00,000 1,00,000 80,000 2,00,000
Sales Less: variable costs: Rs direct materials 2,00,000 direct wages 80,000 variable overhead 1,00,000 3,80,000 Contribution
Rs 5,00,000
1,20,000
P/V ratio = contribution x 100 = 1,20,000 x 100 = 24% sales 5,00,000 B.E.P = Fixed Cost = 60,000 = Rs 2,50,000 P/V Ratio 24% Break-even ratio = break-even Sales x 100 actual Sales = 2,50,000 x 100 = 50% 5,00,000
Find out the break-even point from the following Figures by a contribution graph. Sales volume : Selling price per unit : Variable cost per unit: Fixed cost : 80,000 units Rs. 20 Rs. 10 Rs. 4,00,000
Contribution per unit = selling price per unit - variable cost per unit = Rs.20 Rs. 10 = Rs. 10 B.E.P(in units) = fixed cost contribution per unit = 4,00,000 = 40,000 units 10 B.E.P(in Rupees) = B.E.P(units)x selling price per unit = 40,000 x 20 = Rs 8,00,000
Prepare a cash break-even chart from the Following data: Sales : 40,000 units Rs 10 Variable cost : per unit Rs. 5 Fixed costs : Requiring immediate cash payment Rs. 50,000 Not requiring cash payment(depreciation) Rs. 30,000 Rs. 80,000 Tax : 50% profit Preference dividends : Rs 20,000
From the following data, draw control break-even Chart: (i) Budgeted figures: (ii) Actual figures: Fixed costs Rs 20,000 Fixed costs Rs 36,000 Variable costs Rs 40,000 Variable costs Rs 40,000 Sales Rs 80,000 Sales Rs 1,00,000 (10,000 units at Rs 8 each) (10,000 units at Rs 10 each)
The following figures relate to one years working in a manufacturing business: Rs. Fixed overheads : 1,20,000 Variable overheads : 2,00,000 Direct wages : 1,50,000 Direct materials : 4,10,000 Sales : 10,00,000 Present each of the above figures graphically on a breakeven chart and find out break-even point.
In short run , where a part of firms investment is a sunk investment , they use a more appropriate concept known as contribution margin . Total contribution profit(TCP)=TR-TVC
profit volume ratio is also called contribution ratio. It is rate of contribution per product as a percentage of turnover. P/V ratio= contribution sales x 100
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