Break Even

Point is the point

where the profit
from the
transaction is zero
and the total sales
is equal to total
costs.

Formula:
BEP = Fixed Costs/
(Selling Price
Variable Costs)
Fixed Costs

These are the

costs that do not
change with the
quantity produced
and remains
constant.
Examples can be

the rent, property

tax, insurance, etc.
Variable Costs
These costs
depend on the
quantity produced
and vary with the
production levels.

They increase with

the increase in
production
volumes.Examples
are labor cost,
material cost, etc.

Total Cost = Fixed

Cost + Variable
Cost
Break Even Chart
It is a graphical
representation of
costs at different

levels as shown
below-

Break Even Point Chart

P represents the
breakeven point
where the income

is equal to the
total costs and the
profit is zero.
Advantages of
Break Even
Analysis

1. It can be
interpolated to
find the changes in
profit levels and
break even points
upon changes in
fixed costs,

variable costs and

commodity prices.
2. It is useful in
capital budgeting
techniques.
3. It represents the
minimum amount

of sales necessary
to prevent losses.

Limitations of
Break Even
Analysis
The classification
of costs into fixed
and variable is not

very clear. And it is

suited only to the
analysis of one
product at a time.