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GROUP MEMBERS
Ayesha Akram 61
Hafiz Subhan 85
M.Waqas Amin 86
Ozan Ali Nayyar 105

Presented to:
Sir M. M. SHAH KHAN 2
 BUSINESS
FINANCE

BREAK EVEN POINT &

CONTRIBUTION MARGIN
BUSINESS FINANCE
Outline:
Definitions

Basic Concepts

What it can be used for?

BEP Formula

Contribution Margin

BEP Sample Problems

BEP Graph

Conclusion

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Break-Even Point

A decision-making aid that enables a manager to

determine whether a particular volume of sales will
result in losses or profits

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 Basic Concepts
Variable costs are costs that change with changes in
production levels or sales. Examples include: Costs of
materials used in the production of
the goods

Fixed costs remain roughly the same regardless of

sales/output levels. Examples include: Rent,
Insurance and Wages

Revenue is the total income received.

Profit is the money you have after subtracting

fixed and variable cost from revenue. 6
What it can be used for?

Monthly expenses- use it to see if

your income is more then your
expenses

Determine minimum price product

can be sold for

Determine optimum price product

can be sold for
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The Break-Even Point (BEP) Formula

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 Contribution Margin

Contribution margin means the selling price minus

the variable cost incurred on the product. Thus, it is
the ability of the firm to cover its variable cost with
the revenue. The remaining amount i.e. the
contribution covers fixed cost or is the profit
earned by the business.

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The Contribution Margin (CM) Formula

Contribution Margin = Sale Price Per Unit – Variable Cost Per Unit

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Problem # 1

Lets say you own a business selling burgers

It costs Rs.20.00 to make one burger
That's your Variable cost per unit!
You sell each burger for Rs.60.00
That’s your price per unit!
Your cost for rent, utilities, overhead,
etc... is Rs. 50,000 per month.
That's your fixed cost!
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Problem # 2

• You own a business of Lemonade Stand

• It costs you Rs.15.00 to make cup of
lemonade
• You sell your lemonade for Rs.30.00
• It cost you Rs.5,000 to rent for the space
of your lemonade stand.
• How many cups of lemonade do you have
to sell to breakeven?
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Graphical Representation

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 Conclusion
 A Breakeven Analysis is a simple tool to use to deter
mine if you have priced your product correctly

 A Breakeven Analysis helps you calculate how much

you need to sell before you begin to make a profit.
You can also see how fixed costs, price, volume, and
other factors affect your net profit.

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Thank You
ANY QUESTIONS ?