Hum 5611: Project Management and Accounting

Department of Architecture
Dhaka University of Engineering and Technology (DUET)
( Lecture 17: Accounting)"

Md. Mazharul Alam Mahi Mazhar

BBA, MBA (AIS), MBA (HRM, IBA) RU, PGD (FIN)& HET,
BUP.
Assistant Professor (Business and Industrial Management)
Faculty of Science and Engineering
Dhaka University of Engineering and Technology (DUET),
Gazipur 1700
Mobile No 1:+88 01626334961,
Mobile No II:+8801936443669
E-mail: mahimazhar@yahoo.com, mahimazhar@duet.ac.bd
 Cost, Volume, Profit analysis

 Breakeven point (BEP) :BEP represents a level of production / activity

where a company neither earns any profit nor incurs any loss. That is, the
point of equilibrium where the cost of sales and sales revenue are equal.
The BEP can be computed using equation method or the contribution method.
 Equation method: BEP = sales – Vc – Fc
 Contribution margin method:

Fixed Expenses
BEP (in units) = ----------------------------
Unit contribution margin

Fixed Expenses
BEP (in Taka) = ------------------
P/V ratio
At last, BEP is the level of sales at which profit is zero.
 Why do you calculate the breakeven point?/Why
breakeven points is important?
To avoid loss: BEP will give you the answer, that how much sales are
required to avoid loss.
Desired profit: In order to earn a desired profit say in 10000, BEP will
give you the answer that how much you are to sell.
Amount of profit: BEP helps to know what the profits will be at various
level of activity i.e. it can determine profit or loss of a business at
different level of activities.
Fixed cost recovering: In case of producing each or every product, there
is a fixed cost. BEP helps to ascertain the volume of sales in recover fixed
cost.
Production Manager: How much production capacity has to be used to
avoid loss can be known by BEP for production manager.
To compare: Management can compare to various products profitability
through BEP.
 What are the factors influenced BEP?

Sales Mix
Variable cost
Fixed Cost
Selling price
 Calculation of contribution margin (CM)
 Calculation of contribution margin (CM)
 Sales …………………………….. XXX
 (-) Variable Cost (V/C) ………….. XXX
 Contribution Margin (CM)…… XXX
 (-) Fixed Cost (F/C) …….……….. XXX
 Net Operating Profit (NOP)….. XXX

In short, Sales – Variable Cost =

Contribution Margin
Or, Contribution Margin =Fixed cost
+Profit
Contribution Margin Ratio / Profit Volume Ratio

  Contribution
P/V ratio = --------------- X 100
Sales
  C
= --------------- X 100
S
 Break-even point
Fixed Expenses
 BEP (in units) = ----------------------------
Unit contribution margin
 
Fixed Expenses
 BEP (in Taka) = ------------------
P/V ratio
 **Margin of safety = Actual Sales – BE sales
 Example-1
A manufacturing company produces 4,000 units, which
are sold at Tk.18 per unit. The cost of production is as
follows:
 
(i) Direct Materials ………………… Tk. 16,000.00
(ii) Variable Conversion Cost…………Tk. 32,000.00
(iii) Fixed Cost ……………………….. Tk. 15,000.00
Required:
◦ What is the break-even point in units?
◦ What is the break-even sales volume?
◦ What is the amount of profit?
◦ What would be the break-even sales if the selling price is
increased by Tk.2
 Solution:
Total variable cost =Direct material + Variable conversion cost
= Tk. (16,000 + 32,000)
= Tk. 48,000
Total variable cost
Variable cost per unit= -------------------
Production units
Tk.48,000
= -------------
4,000 units
 
= Tk.12
Solution:

(a) Break-even point (BEP) in units

Fixed Cost
= -------------
Unit’s contribution margin

15,000
= ---------
Tk.6
= 2500 units
Solution:

Contribution margin per unit

= Sales – variable cost per unit
= Tk. 18 – Tk. 12
= Tk. 6
Contribution = Sales – variable cost per
unit
= Tk.(72,000 – 48,000)
= Tk. 24,000
Solution:

Contribution
P/V ratio = ---------------
Sales

24,000
= ---------
72,000
= 0.3333
= 33.33%
Solution:

(b) Break-even point (BEP) in sales

 
F/C
= ------ x 100
P/V
 
15,000
= --------
33.33%
= Tk. 45000
Solution:

(c) Profit = Sales – Variable Cost – Fixed Cost

= 72,000 – 48,000 – 15,000
= Tk.9, 000
 
(d) Increased Selling price = Tk. (18 + 2 )
= Tk. 20
 Total sales = (4,000 x 20)
= Tk.80,000
New contribution margin = Tk.80,000 – Tk.48,000
= Tk.32,000
Solution:

C
New P/V ratio = ------
S
32,000
= ---------
80,000
= .40
= 40%
 Solution:
F/C
New BEP ( in sales) = -------- X 100
P/V
 
15,000
= ---------
40%
= Tk.37500
 
F/C
(e) BEP ( in units) = ----------------
CM per unit
 
15,000
= --------
Tk.8
 
= 1875 units
Thank You Sessions