BREAK-EVEN ANALYSIS

SYED AHSAN ZOHAIB

0300 8467523
It is a point where firms earn no
profit no loss.

Total Cost = Total Revenue

$100 = $ 100
Formula:

Breakeven = Fixed Cost / Contribution per unit

CONTRIBUTION = SELLING PRICE – VARIABLE COST

Question:
Selling Price = $ 6 / unit
Variable Cost = $3 / unit
Fixed Cost = $1800 p.a

B.E = Fixed Cost / Contribution per unit

B.E = 1800 / 6 - 3
B.E = 1800 / 3
B.E = 600 units
 TR

PROFIT TC
4200

3600 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -:
Cost :
& 3000
:
Revenue :
($) 2400
:
LOSS :
1800 FC
:
:
1200
:
:
600
:
:

100 200 300 400 500 600

Total Revenue = Selling Price * Breakeven Units
Output Total Cost = Fixed Cost + Variable Cost (total)
MARGIN OF SAFETY (MOS) = Output – Breakeven

Selling Price = $ 5 / unit

Variable Cost = $ 3/ unit
Fixed Cost = 6000 p.a
Output = 4000 units

B.E = 6000 / 2 = 3000 units

MOS = Output – B.E = 4000 – 3000
= 1000 units
Advantages of Break-Even

1. Production Planning
2. Financing Decision
3. Pricing Decision
4. Location Decision
Disadvantages of Break Even

1. No Closing Stock
2. Stable Costs
3. Need Accuracy / Accurate Data