PRESENTATION ON BREAK EVEN ANALYSIS
Prepared By: Solanki Hiten
Definition
According to Curry and Frank, ´ Break Even Analysis indicates at what level cost and revenue are in equilibrium.µ
In short, BEA gives us the level of minimum sales where we can cover the cost of our production.
CONCEPT OF BEA
The prime objective of business is to earn profit.
But sometimes firm may be unable to earn profit at that time it tries to cover only cost incurred by it. BEP helps in finding out the level of production at which the cost can be covered. BEP can be found out in two terms: (i) BEP in terms of quantity (ii) BEP in terms of sales value
BEP IN TERMS OF QUANTITY
This method indicates share of each commodity in fixed cost. It is used to find out the total number of units to be sold to cover total cost.
BEP IN TERMS OF SALES VALUE
Sometimes it may be difficult to find out variable cost per unit if company is producing multiple products.
So here contribution is expressed in terms of percentage that is known as Profit Volume Ratio (PVR).
USES OF BEA
?
It is very easy and inexpensive for managers in taking decisions. It is helpful in taking decision regarding determination of product mix.
?
It can be used in taking decisions regarding change in price, cost or productive capacity of plant.
?
?
This concept is useful to determine Margin of Safety(MOS) or to achieve targeted profit.
USES OF BEA
?
It is helpful in deciding production techniques and minimizing the cost.
?
The firm can estimate the return received on capital investment with help of BEA. It also determines the minimum level of output.
?
EXAMPLE - 1
Fixed Cost = 25000 Selling Price = 15 Variable Cost = 5
Then, Contribution = Selling Price ² Variable Cost C = 15 ² 5 C = 10
BEP = 2500 units
EXAMPLE - 2
Fixed Cost = 30000 Variable Cost = 4000 Sales = 10000
= 60 %
= Rs. 50000
Thank You«
doc_777144934.pptx
Prepared By: Solanki Hiten
Definition
According to Curry and Frank, ´ Break Even Analysis indicates at what level cost and revenue are in equilibrium.µ
In short, BEA gives us the level of minimum sales where we can cover the cost of our production.
CONCEPT OF BEA
The prime objective of business is to earn profit.
But sometimes firm may be unable to earn profit at that time it tries to cover only cost incurred by it. BEP helps in finding out the level of production at which the cost can be covered. BEP can be found out in two terms: (i) BEP in terms of quantity (ii) BEP in terms of sales value
BEP IN TERMS OF QUANTITY
This method indicates share of each commodity in fixed cost. It is used to find out the total number of units to be sold to cover total cost.
BEP IN TERMS OF SALES VALUE
Sometimes it may be difficult to find out variable cost per unit if company is producing multiple products.
So here contribution is expressed in terms of percentage that is known as Profit Volume Ratio (PVR).
USES OF BEA
?
It is very easy and inexpensive for managers in taking decisions. It is helpful in taking decision regarding determination of product mix.
?
It can be used in taking decisions regarding change in price, cost or productive capacity of plant.
?
?
This concept is useful to determine Margin of Safety(MOS) or to achieve targeted profit.
USES OF BEA
?
It is helpful in deciding production techniques and minimizing the cost.
?
The firm can estimate the return received on capital investment with help of BEA. It also determines the minimum level of output.
?
EXAMPLE - 1
Fixed Cost = 25000 Selling Price = 15 Variable Cost = 5
Then, Contribution = Selling Price ² Variable Cost C = 15 ² 5 C = 10
BEP = 2500 units
EXAMPLE - 2
Fixed Cost = 30000 Variable Cost = 4000 Sales = 10000
= 60 %
= Rs. 50000
Thank You«
doc_777144934.pptx