Break – even Analysis

 It’s a measure tool for profit planning, it’s

the point where Business makes no profit
no losses
Total Cost = Total Revenues
FC + VC = P x Q
FC + (AVC x Q ) = P x Q
 FC = ( P x Q) – (AVC x Q)
 FC = Q ( P- AVC )

Q= FC B.E. Quantity
P- AVC
ex.: xyz co. sells a product for 2 L.E. & AVC
per Unit is 1.5 LE. & TFC per year = 100,000
L.E.
 Q = 100,000 = 200,000
2- 1.5
100,000 + (200,000 x 1.5) = 200,000 x 2
400 = 400
If you know that the co is currently producing
525
350,000 units : 100 + (350x1.5)= 350x2
625 ≠ 700
-
Determine  p= 700 – 625
p= 75
- Show B. even Chart
 FC B. Even Chart
TC
TR TR
(000’s)

 = 75 TC
700

625 r ofit
P

400

FC
100 ss
Lo

0 200 350 Q (000’s)

A) End of 25/6/20--
Total Sales 100 M
VC of the Sales = 60 M
TFC = 40 M per year
Monetary B.even = TFC
1- VC
Tot. Sales

M. B. even = 40 =100 M
1- 60
100
B) TS = 60 M
M. B. even = 40 =100 M
VC = 36 M
FC = 40 M 1
- 36
60

C) TS = 200 M M. B. even = 40 =100 M

VC = 120 M
FC = 40 M
1
-120
200
Operating leverage:
If the FC presents a big portion of the
project TC it’s known by high operating
leverage, which means a small
percentage of change in Sales will lead to
high percentage in operating profits.
Company (A)
Selling Price = Fixed Costs Average valuable cost per
.2 L.E 20000 unit = 1.50 L.E.
No. of Units Sold Sales revenue Total operating Operating Profits
expenses
20000 40.000 50.000 )10000(
40000 80.000 80.000 0
60000 120.000 110.000 10.000
80000 160.000 140.000 20.000
100000 200.000 170.000 30.000
120000 240.000 200.000 40.000
200000 400.000 320.000 80.000
Company (A)
FC
TC
TR
(000’s)

240 TR

200

180 TC

160
B.Even point r ofit
120 P

80

40 FC
ss
Lo

0 120 100 80 60 40 30 20 Q (000’s)

Company (B)
Selling Price = Fixed Costs Average valuable cost per
2 L.E. 40000 unit= 1.20 L.E.
No. of Units Sold Sales revenue Total operating Operating Profits
expenses
20000 40.000 64.000 )24.000(
40000 80.000 88.000 ) 8.000)
60000 120.000 112.000 8.000
80000 160.000 136.000 24.000
100000 200.000 160.000 40.000
120000 240.000 184.000 56.000
200000 400.000 280.000 120.000
Company (B)
FC
TC
TR
(000’s)
240
TR
200
TC
180

160 fit
Pr o
B.Even point
120
80

40 ss FC
Lo

0 120 100 80 60 40 30 20
Company (C)
Selling Price = Fixed Costs Average valuable cost per
2 L.E. 60.000 unit = 1 L.E.
No. of Units Sold Sales revenue Total operating Operating Profits
expenses
20000 40.000 80.000 )40000(
40000 80.000 100.000 )20000(
60000 120.000 120.000 0
80000 160.000 140.000 20.000
100000 200.000 160.000 40.000
120000 240.000 180.000 60.000
200000 400.000 360.000 140.000
Company (C)
FC
TC
TR
(000’s)
TR
240

200 TC
180
r ofit
160 P
B.Even point

120
80
ss
Lo
40
FC
0 120 100 80 60 40 30 20