BREAK EVEN

ANALYSIS
COST-VOLUME-
PROFIT ANALYSIS
 COST-VOLUME-PROFIT ANALYSIS
 Extension of marginal costing principle
 Studies the inter-relationship of basic 3factors:
 Cost of production
 Volume of production
 Profit

CIMA London “the study of the effects on future

profits of changes in fixed cost, variable cost, sales
price, quantity and mix”
 BREAK EVEN ANALYSIS
 It is a costing technique
 Establish a relationship between revenues
and costs with respect to volume.
 Indicates the level of sales at cost and
revenue are equilibrium.
 No profit , no loss at that point.
 ASSUMPTIONS OF BREAK EVEN
POINT
 Production and sales are the same.
 Fixed cost remains same irrespective of the
production volume.
 Variable cost varies with the production
 Selling price per unit remains same
irrespective of the quantity sold
 BREAK EVEN COMPUTATION
1. Mathematical approach
2. Graphic approach

 Break even point(units) =Total Fixed cost

Selling price- variable cost per
unit
FC/Contribution per unit
 BEP(rupees)= Total fixed cost
P/V ratio
 P/V ratio = S – V x 100
S
 Sales for desired profit= FC+ Desired profit

P/V ratio
 Margin of safety = Actual sales- Break even sales
 Difference between actual sale and break even
sale.
 It is amount by which actual volume of sales
exceeds the break even point.
 Fixed cost, FC — Costs not directly dependent on the
variable,
e.g., buildings, fixed overhead, insurance, minimum
workforce cost
 Variable cost, VC — Costs that change with
parameters such as production level and workforce
size. These are labor, material and marketing costs.
Variable cost per unit is v
 Total cost, TC = Sum of fixed and variable costs,
 TC = FC + VC