A PRESENTATION

on
BREAK-EVEN ANALYSIS
And
P/V RATIO
PRESENTED BY:
Ramaque Jawaid Warsi (MBA/40075/19)
Aditya Sarkar (MBA/40076/19)
Krishna Kumar Pandey (MBA/40077/19)
Bhavya (MBA/40078/19)
Nikhil Sharma (MBA/40079/19)
Rahul Ballav (MBA/40080/19)
 Contents
2

 Break Even Analysis  Profit Volume Ratio

 Introduction  Introduction
 Components  Components
 Assumptions  Computation
 Benefits  Margin Of Safety
 Limitations  Introduction
 Computation  Formulae
 Example - Dabur India Ltd
 Introduction
3
Break-Even Analysis
• A financial tool to determine at what stage a
company, a service or a product will be profitable.
• Financial calculation for determining the number of
products or services a company should sell to cover
its costs. Break-even is a situation where you are
neither making money nor losing money, but all
your costs have been covered.
• Break-even analysis is useful in studying the
relation between the variable cost, fixed cost and
revenue.
• Generally, a company with low fixed costs will have
a low break-even point of sale.
• It is also known as Cost-Volume Profit Analysis.
 Introduction
4
Break-Even Point
• A point where the gains equal the
losses.
• This point defines when an investment
will generate a positive return.

/₹
• The point where sales or revenues
equal expenses.
• The point where total costs equal total
revenues.
• There is no profit made or loss
incurred at the break even point.
Components of Break Even Analysis
5
Assumptions of Break Even Analysis
6

• All elements of cost i.e. production, administration,

and selling distribution can be divided into fixed and
variable components.
• Variable costs remain constant per unit of output.
• Fixed cost remain constant at all volume of output.
• Selling price per unit remains unchanged or constant
at all levels of output.
• Volume of production is the only factor that
influences cost.
• There will be no change in the general price level.
• There is one product and in case of multi product,
the sales remain constant.
Benefits of Break Even Analysis
7

Catch missing expenses

Set revenue targets

Make smarter decisions

Fund your business

Better Pricing

Cover fixed costs

 Limitations of Break Even Analysis
8
• In practice it is difficult to achieve a clear cut division of costs into fixed and variable
types.
• Fixed costs tend to vary beyond a certain level of activity.
• In practice variable costs changes but not necessarily in direct proportions with the volume
of output.
• Selling price may not remain unchanged as it depends upon certain factors like market
demand and supply, competition etc.
• The assumption that only one product is produced or that product mix will remain
unchanged is difficult to find in practice.
• Apportionment of fixed cost over a variety of products poses a problem.
• It assumes that the business conditions may not change which is not true.
• In practice, the production and sales quantities may not be equal and there can be a change
in opening and closing stock of finished product.
• The break-even analysis does not take into consideration the amount of capital employed
in the business. In fact, capital employed is an important determinant of the profitability of
a concern.
 Computation of Break Even Point
9
1. Algebraic Method
  BEP in terms of Rupees (₹)   BEP in terms of Units
BEP = or
 When selling price and variable cost is
known. BEP =
BEP = or
 BEP in terms of Capacity
BEP = BEP in units Selling Price
BEP = × 100 or
 When no information is given
BEP = or BEP = × 100

BEP = Actual Sales – Margin Of Safety  Break Even Ratio = × 100

Computation of Break Even Point
10
2. Graphical Method
 Introduction
11
Profit Volume (P/V) Ratio
• This ratio indicates the contribution earned with
respect to one rupee of sales.
• It is also known as Contribution Ratio or Marginal
Ratio.
• Fixed cost remain unchanged in the short run, so if
there is any change in profits, that is only due to
change in contribution.
• P/V ratio, which establishes the relationship between
contribution and sales, is of vital importance for
studying the profitability of operations of a business.
It reveals the effect on profit of change in the volume.
• Higher the P/V Ratio, more will be the profit and
lower the P/V Ratio lesser will be the profit.
 Components of P/V Ratio
12

Variable costs
• Variable costs are costs that will increase or decrease in
direct relation to the production volume.
• These cost include cost of raw material, packaging cost,
fuel, insurance, wages and other costs that are directly
related to the production.

Selling Price
• The amount at which the product is sold in the market.
 Computation of P/V Ratio
13


  P/V Ratio = × 100 
  P/V Ratio = [ ]
=> P/V Ratio = × 100
 P/V Ratio =
Or
 When information of sales and profit of the duration
is given P/V Ratio = 1 -
P/V Ratio = × 100
 Composite P/V Ratio =
 P/V Ratio =
 P/V Ratio =
 How to improve P/V Ratio ?
14

• If the selling price is increased and the variable cost is constant

then, the contribution would be increase and so would the P/V
ratio.
• If the sales mixture is altered and the product with high
contribution is sold more then the total contribution would
increase and so would the P/V ratio.
• If the selling price remains constant but the variable cost is
reduced then the contribution would increase and so would the
P/V ratio.
 Margin of Safety
15

• The degree of Margin Of Safety

indicates safety measurement in the
business and at the same time it
allows to take decision regarding the
management of cost.
• Margin Of Safety represents the
strength of the business. It enables a
business to know what is the exact
amount it has gained or lost and
whether they are over or below the
Break Even Point.
 Margin of Safety
16

FORMULAE
  MOS (units) = Actual Sales (unit)- Sales at Break Even Point (unit)

 MOS (₹) = Actual Sales (₹) – Sales at Break Even Point ( ₹)

 MOS (%) =

 MOS (₹) =
Example : - Dabur India Ltd
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• Founded – 1884
• Owner – Burman Family
• Headquarter – Ghaziabad, Uttar Pradesh
• Products - Health supplements
OTC & Ayurvedic medicines
Personal care
Oral care
Digestives
Foods
Home care
• Revenue - ₹ 8,829 Crore (2018 – 19)
• Net Income - ₹ 1,446 Crore (2018 – 19)
• Website – www.dabur.com
Profit – Loss Account Data of Dabur India Ltd
For 2018 - 19 18
Particulars ₹ in Crores
Employee Cost 572.33
Depreciation 108.83
Selling and Administration Expenses 835
Miscellaneous Expenses 109.27
Tax 369.28
Deferred Tax -130.22
Fixed Costs 1,864.49
Raw Materials 2,511.23
Power & Fuel Cost 63.99
Other Manufacturing Expenses 804.04
Variable Costs 3,379.26
Sales Turnover 6,273.19
Excise Duty 0 Source:
http://www.capitalmarket.com/Company-
Net Sales 6,273.19 Information/Financials/Profit-and-
Loss/Dabur-India-Ltd/3392
 Calculations
19
Given :-
Fixed Cost = ₹ 1,864.49 Crore
Variable Cost = ₹ 3,379.26  • Break Even Point =
Crore
Sales Turnover = ₹ 6,273.19 =
Crore = ₹ 4,041.82 Crore
Net sales = ₹ 6,273.19
Crore • MOS (₹) = Actual Sales – Sales at Break Even Point
 • Contribution = Sales – Variable Cost = 6,273.19 - 4,041.82
= 6,273.19 – 3,379.19 = ₹ 2,231.37 Crore
= ₹ 2,893.93 Crore
• MOS (%) =
• P/V Ratio = × 100 =
= = 35.57 %
= 46.13 %
 Results
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Break Even Point = ₹ 4,041.82 Crore

P/V Ratio = 46.13 %

Margin Of Safety (₹) = ₹ 2,231.37

Crore

Margin Of Safety ( % ) = 35.57 %

 Graphical Representation
21

Angle Of Incidence
Revenue
Break Even Point
6273.19
fi t
5243.75 Pro

4041.82
e 3379.26
s t Lin
o
o t al C s Variable Cost
T s
Lo

L ine Margin 1864.49

a le s Of Safety
S Fixed Cost

Sales
 Conclusion
22

• Dabur India Ltd has a Break Even Point of ₹ 4,041.82 Crore which is very
near to its Sales i.e. ₹ 6,273.19 Crore. This implies that the profit earned
by the company is on the lower side and the angle if incidence formed is
also low.
• Dabur India Ltd has a P/V Ratio of 46.13 % which is very average. It
indicates that their Variable Expense is on the higher side as compared to
their sales.
• Margin of safety is an advantage to the company. It indicates the extra
profit the company earns over the Break Even Point. Dabur’s MOS is
35.57 % which is average. This means that the firm will earn less profits if
there is a slight fall in production or sales.
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