Presented by:

GROUP NO. 10
Ansuman Rath
Meenal Jindal
Fakeha rahman
Rajeev D.R
Md. Shamshad Ansari
 Case Study: Krishna Bakery.
Assume we have a Krishna Bakery in Anekal, The Financial account book
of Krishna Bakery reveals that its fixed costs are Rs.50,000/-. The cost
associated with producing 1 unit of Black forest Pastry is Rs 3/-. The
bakery sales person sells pastries at Rs 13.00/- per unit
Now, as the future managers of Anekal, we have to determine
 What are the minimum number of Pastries that has to be produced?
and
 What is the minimum sales need to be done, so that the Krishna
bakery’s investors get at least their invested money back ?
Now lets discuss the factors
involved:
 Fixed cost:
It is the cost that does not vary depending on production or
sales levels, such as rent, property Tax, insurance or interest
expenses.

 Variable Cost:
It is the cost that changes in proportion to a change in a
company's activity or business.
E.g.- Labour cost, Raw material cost.

 Contribution Margin per Unit =Contribution per margin Sales Price

per Unit — Variable Costs per Unit.
 Break even point
It is the point at which the company neither makes a profit
nor suffers a loss.

 Breakeven Units :
It’s the number of units that need to be sold in order to incur
back the investment that has been done.

 Break Even Sales :

It is the sales that has to be done to incur back the investment
done.
 Methods of calculation
Mathematically,
Q = FC / (UP - VC)

Where,
 Q = Break-even Point, i.e., Units of production (Q),
 FC = Fixed Costs,
 VC = Variable Costs per Unit
 UP = Unit Price of sale
 Therefore,
 Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)
Graphically,
 
 

Analysis of the case:

Here,
 Fixed cost=Rs 50,000/-
 Variable cost =Rs 3/- per unit
 Selling Price=Rs13/- per unit
 Contribution margin per unit=Rs13-3=Rs 10/-
 Break even units=50000/10=5000 units
Where it is applied.??
This concept is applied in all most all industries. For instance,

 Manufacturing Industry

 Service Industry
What if……???
What Happens to the Breakeven Point if Sales Change?

 For example, due to recession, your sales are starting to drop. As sales
are dropping, you are in a sticky situation as we are not able to break
the even point.

 In simple words, you are sales are doing bad and due to this, you are
compromising on getting back the total cost invested on the product
hence resulting in losses.
 Solution
 We can either raise the price of our product or we can find ways to
cut our costs, our fixed and/or our variable costs.

 Decreasing the Fixed cost will move the BEP down and hence
decreasing the Break even Units sales to achieve. Similarly for the
Variable cost , E.g. cutting down the salaries of the employee.

 Thus we can see that, we can set an easier BEP to achieve by the above
methods, keeping aside the price increase strategy.
Multiple Break Even Analysis
 In the examples ,the variable cost parameters and the price were
assumed to be constant because of which the graphs were linear.

 If the assumptions of the constant price is relaxed then we can

introduce a non linear cost and revenue function and by that we get
multiple break even points.

 However, in real life scenarios, most businesses face the multiple

break even points due to external factors like price increase/decrease
in raw materials used, govt. impelling on higher taxes. Etc.
Multiple Product Situations
Most of the firms manufacture out Multiple products. Even here , BE
point can be calculated. However, the assumption has to be made that
the sales mix remains constant. This is defined as the relative
proportion of each product’s sale to total sales. It could be expressed
as a ratio such as 2:4:6, or as a percentage as 20%, 40%, 60%.

 The calculation of breakeven point in a multi-product firm follows the

same pattern as in a single product firm. While the numerator will be
the same fixed costs, the denominator now will be weighted average
contribution margin. The modified formula is as follows:
Mathematically,
Breakeven point (in units) =

Fixed costs / Weighted average contribution margin per

unit

One should always remember that weights are assigned in

proportion to the relative sales of all products. Here, it will
be the contribution margin of each product multiplied by
its quantity
 Y ou
an k
Th
Thanks