WELCOME

BREAK EVEN POINT

GROUP MEMBER
SURENDRA SHARMA
RUPESH CHAVAN
MILIND GHATE
MANDAR THAKUR
RACHANA
 BREAK EVEN ANALYSIS

The break even analysis is an important technique to trace the

relationship between costs, revenue & profits at the varying levels of
output or sales.
 
The break even point is located at that level of output or sales
at which the net income or profit is zero. At this point, total cost is
equal to total revenue; hence the break even point is the no profit no
loss zone
Revenue
Revenue = (Price per unit) x (Quantity)

Revenue is income from sales and is determined by

multiplying the selling price by the quantity sold.
Expenses
Expenses = Fixed Costs + Variable Costs

Variable Costs are the cost per unit times

the quantity
Variable Costs = Unit Cost x Quantity

Fixed costs are those costs which a firm has to

incur weather production takes place or not
FORMULAS
Pvr%

Sales ------- Variable cost = Contribution

 
 

 
 
Fixed cost Profit
 
Break Even point Marginal of safety
 
 Fixed cost
Break Even point = -----------
Pvr%
 
Contribution
Pvr% = ----------------- 100
Sales
 
Profit
Margin of safety = -----------------
Pvr%
 
 
Contribution = Sales --- Variable cost
 
 
 
 
As per the data supplied by the accounts department the fix cost of a firm
are Rs.28000 per annum and the variable cost per unit is Rs.3.Thefirm sells
each unit at Rs.10.At what level and output does the break even point?
 
Cont = sales - variable cost

= 10 pu – 3 pu
 
= 7 pu

Contribution
PVR = ------------------- * 100
Sales
7 pu
=--------- *100
10 pu
 
= 70%
 Fixed cost
BEP = ------------------
PVR%
 
28000
= ------------
70%
 
= 40000/-

Break even sales

BEP unit =---------------------
Sales p.u
 
40000/-
= -----------
10

= 4000 unit
 
.: A firm achieve at least Rs.40000 or 4000 unit output the he sets it BEP
 
 
ASSUMPTION
 The cost function & the revenue function are linear
 
 The total cost is divided into fixed 7 variable cost
 
 The selling price is constant
 
 The volume of sales & the volume of production are identical
 
 Average & marginal productivity of factor are constant
 
 Factor price is constant
 
LIMITATIONS
It is static
It is unrealistic
It is scope to limited to the short run only
It is difficult to handle selling costs in the
break even analysis
The traditional break even analysis is very
simple