BREAK EVEN ANALYSIS

(BEA)
Break-Even Point (BEP) represents that specific level
of output or volume of sales where a firm breaks
even.
That is, it equalises its TR with its Total cost of
production (TC).
 TOTAL CONTRIBUTORY MARGIN (TCM):

• TCM=TR-TVC =
 DERIVATION OF BREAK EVEN POINTS:

1. BEP in terms of output (QB):

• QB = [TFC/(P-AVC)]
• QB =TFC/ACM
2. BEP in terms of Sale Turnover (S B):
• SB = TFC/ [(P-AVC)/P] = TFC / [Profit-volume (P/V)
ratio]
3. BEP as % of total capacity of the firm:
• QB(%) = [QB/Qmax] *100
 BEP WITH TARGETTED PROFIT (∏):

So here the break even output (QB) has to

achieve/recover the total cost along with ∏
Here QB’ = [TFC+∏]/ [P-AVC]

SB’ = [TFC +∏]/ (P/V ratio)

MARGIN OF SAFETY: (MOS)

1. MOS= [(QS –QB)/QS ] *100

where QB =Break even output and Qs = actual output

2. MOS = Total actual sale - Break even turnover

(SB)
METHODS OF REDUCING THE BREAK-EVEN POINTS

1.Reducing the TFC

2.Increasing the Price per unit
3.Reducing the AVC per unit.
 BREAK EVEN NUMERICALS:

Q1. Break even production of a firm is given as 5000

units and its TFC is given as Rs. 50000. The variable
cost per unit is given as Rs.25. Find how much the
firm should produce to earn a profit of Rs. 25000.
Q2. Given the TR and TC functions as:-
TC=3000 + 5X and TR=30X (where X=quantity sold)

Find (i) Break even output (QB)

(ii) Profit at an output of 50 units using the Total
contributory margin (TCM) concept.
 Q3. Following is given the information related to a company.
TFC=Rs.4500 TVC= Rs.7500 Total sales = Rs.15000
Units sold=5000 units
Calculate (i) TCM
(ii) BEQ
(iii) MOS in output and sale turnover
(iv) Profit
(v) the sale turnover required to achieve a profit of
Rs. 6000.
Q4.If the Fixed cost of a company is Rs. 60000, the
AVC =Rs. 10 and the price per unit as Rs.20,
find the Margin of safety (MOS) if the company is
selling 10000 units of output.
Q5.Given the following information about two firms A and B,
find which one has a higher MOS.

Firm A Firm B

Actual output 1 lakh 60000

Break-even output 60000 20000