Lesson Plan:

Break Even Analysis

Determination of Break Even Point
Managerial significance of BEP
Limitations of BEP
 About
Cost-Volume-Profit analysis (or)
Break even point analysis
 Certain Terminologies in B E P
 Total cost = Total Variable cost and Total Fixed cost
 Total fixed cost: This cost will not change with quantum of production
up to certain extent.
 Total Variable cost: This cost will vary according to quantum of output.
The more is the output, the more would be the total variable cost.
 Contribution : The difference between Sales and Variable cost. (C=S-V)
 Profit Volume Ratio (P V Ratio = Contribution / Sales)

BEP
In Quantity = Fixed costs / Contribution per unit

In value = Fixed cost / P V Ratio

 Margin of safety = Present sales – BEP sales or Fixed cost / P V Ratio.

 Sales to earn a profit = (Fixed cost + Desired profit) / cont. per unit
= (Fixed cost + Desired profit) / P V Ratio.
Break Even Point is the point at which, the total revenue equals
with total cost.
At this point, there is neither profit nor lose.
Hence, it is called break-even.
Profits start accrue beyond BEP and below BEP there are only
losses.