PME-456_Break_Even_Analysis

Break Even Analysis

• The break-even point in economics, business—and specifically cost accounting
—is the point at which total cost and total revenue are equal, i.e. "even". There
is no net loss or gain, and one has "broken even", though opportunity costs have
been paid and capital has received the risk-adjusted, expected return.
[source-https://en.wikipedia.org/wiki/Break-even_(economics) ]

Total Cost=Fixed Cost +(Variable Cost * Units)

Total Revenue= Sales price per unit * Unit

Total Revenue-Total Cost= 0 =Break Even Point

Figure01: Birds eye view of Break Even Analysis
 Table 01: Total Variable Cost Calculation
Table 02: Fixed Cost Calculation
  Variable Cost  
Ser No. Cost Description Cost,$   Fixed Cost  
1 Casing 30000
Ser No. Cost Description Cost,$
2 Drill String 20000
1 Selling & Distribution cost 200000
3 Electric Generator 40000
4 Spare Pipe 4000 2 Rent per month 1000000
5 Derrick/Mast 50000 3 Salaries 2000000
6 Substructure 75000 4 Utilities per month 400000
7 Crown Block 25000 5 Administration Costs 100000
8 Travelling block/hook 20000
9 Drilling Line 10000
6 Research & Development Costs 50000
10 Draw works 40000
11 Swivel 50000 7 Indirect Labor 50000
12 Rotary Table 50000   Total Fixed Cost 91200000
13 Drill pipe 50000
14 Drill Collars 20000 Sales Cost/ unit
15 Drill Bit 10000 1300000
16 Mud mixing pump 75000
17 Mud mixing tank 20000
18 Mud Pit 30000
19 Mud Pump 100000
20 Stand Pipe 5000
21 Kelly Hose 2000
Shale Shaker (Remove solids of >68
22 µ) 10000
23 BOP 100000
24 Direct Labor 10000
  Total Variable Cost 846000
300000000

250000000

200000000

150000000

100000000

50000000

0
0 50 100 150 200 250

Cost Revenue

Figure 02: Break Even Analysis Graph

Conclusion: The above Break Even iteration has been done for 2 years.Here,
we can see that in between 200 & 201 unit the Break Even point is situated
where the Total Revenue is equal to Total Cost.From the calculation we can
predict that for 200 unit the difference between Total Revenue with the total
Cost is -40,000USD and for 201 unit the difference reaches to 54,000USD.So, Table 03: Break Even Point .
we can end up saying that before hitting the profit margin the Break Even
point exists between 200 and 201 units.