How to calculate Break Even Point(BEP)

Step 1 : Calculate Contribution(C) by applying the

following formula;
Contribution(Per unit): SP per unit – VC per unit

Example: Selling price of orange Rs. 10 per unit,

Variable cost per unit Rs. 6 per unit

Contribution(PU) = Rs.(10 – 6)
= Rs. 4 per unit
Step 2: Calculate PV Ratio by applying following
formula:

P/V Ratio = (Contribution/ Selling price) x 100

Step 3: Fixed cost or fixed overheads/expenses

Now calculation of BEP(Unit) or Rs. Or volume

BEP(Units) : Fixed cost / Contribution per unit
BEP(Rs./Volume) : BEP units x SP per unit, OR
BEP(Rs./volume) : Fixed cost / PV Ratio
Formulae: BEA
1. Contribution(C)PU= SP per unit – VC per unit
Contribution(Total)= Total Sales – Total VC
Contribution = FC + Profit
2. Profit Volume Ratio(PVR) = Contribution/Sales x100
OR, PVR = Change in profit/Change in sales x 100
3. Break Even Point(BEP) Unit= Total FC/C per unit
BEP(Rs.) = Total FC/ PVR
4. Sales required to earn desired amount of profit:-
Sale(Unit) =(Fixed Cost+ Desired profit) / C P.U.
Sales(Rs.) = (FC + desired profit)/ PVR
5. Profit at given amount of sales:

Profit(Rs.)= (Sales x PVR) – FC

6. Fixed cost(FC) = (Sales x PVR) – profit

7. Variable Cost = Sale (1 – PVR)

8. Margin of safety(M/S) = Total sales – BE sales

or, M/S = Profit / PVR

1. You are required to calculate : (i) Margin of safety,
(ii) sales, (iii) Variable Cost
Informations: Fixed cost Rs. 12,000
Profit Rs. 1,000
Break even sales Rs. 60,000
2. From the following the particulars, calculate (i)
Contribution(PU) (ii) PVR (iii) BEP(unit)
(iv) What will be selling price per unit, if the break
even point is brought down to 10,000 unit.
Selling price per unit Rs. 20
Variable cost per unit Rs. 16
Fixed expenses Rs. 60,000
 (3) The sales turnover and profit during two years
were as follows:

YEAR SALES PROFIT

2020 Rs. 1,50,000 RS. 20,000
2021 Rs. 1,70,000 Rs. 25,000
You are required to calculate : (i) PVR and FC (ii) BEP
(iii) The sales required to earn a profit of Rs. 40,000
(iv) The profit made when sales are Rs. 2,50,000
(v) Margin of safety at profit Rs. 50,000 (vi) VC of
two periods
Q. A firm sold in two successive period 7000 units and
9000 units and suffered loss of Rs. 10,000 in the first
year and earned profit of Rs. 10,000 in the second
year. The selling price of both the periods were Rs.
100 per unit.
Calculate ; (i) PVR & FC (ii) No.of units to BEP
(iii) No. of units required to sale to earn a profit of
Rs. 30,000 (iv) Profit with sales of Rs. 11,00,000 (v)
Variable cost in both the periods (vi) MS with profit
of Rs. 11,000
 Q. The following figure relating to the
performance of a company of the years I and II
are available. Assuming that (i) the ratio of the
variable costs to sales, and (ii) the fixed costs are
the same for both the years, ascertain: (a) the
profit volume ratio (b) the amount of the fixed
costs, (c) the budgeted profit for the year III, if
the budgeted sales for the year are Rs.
10,00,000.
Year Sales Total cost
I 7,00,000 5,80,000
II 9,00,000 6,60,000
 Q. 4.
The following information is given:
Sales Rs. 2,00,000
Variable cost Rs. 1,20,000
Fixed cost Rs. 30,000
Calculate (a) BEP (b) New BEP if selling price is
reduced by 10%
(c) New BEP if variable cost increases by 10%
(d) New BEP if fixed cost increases by 10%
 5. From the following, calculate
i) Contribution ii) PVR iii) BEP iv) Sales required to
earn desired profit of Rs. 25,000 v) M/S when profit
is Rs. 8,000
Selling price per unit Rs. 20
Total variable cost Rs. 60,000
Total fixed cost Rs. 75,000
Number of units sold 4,000
6. The following data are available from the records of
a company:
Sales Rs. 60,000
Variable cost Rs. 30,000
Fixed cost Rs. 15,000
Calculate:
i) P/V Ratio, BEP(Rs.) and M/S at this level
ii) The effect of 10% increase in sales price
iii) The effect of 10% decrease in sales price
 Standard Costing
Standard cost is the pre-determined cost relating to
the material, labour, overheads etc. it is the cost
which has been estimated/determined in advance.
When standard cost are used for the purpose of
cost control, the technique is known as the standard
costing.
Standard costing is the preparation of standard
costs and applying them to measure the variations
from actual costs and analysing the causes of
variations with a view to maintain maximum
efficiency in production.
 From the definition technique of standard costing
may comprise:
• Ascertainment of standard costs under each
element of cost i.e., material, labour and overheads.
• Measurement of actual costs.
• Comparison of the actual costs with the standard
costs to find out the variance.
• Analysis of variances for the purpose of
ascertainment of reasons of variances for taking the
appropriate action where necessary so that
maximum efficiency may be achieved.
The difference between standard and actual is called variance.
Variance analysis is the process of analyzing the variances arising
from the budgeting process where actual and standard is compare
and to find the reasons of variances. It is the part of budgetary
control and the part of standard costing for controlling cost and
comparing the actual performances with budgeted figures.
Variance Analysis may be defined as “the process of computing
the amount of variance and isolating the causes of variance
between actual and standard.”

When actual cost is less than standard cost or actual profit is

better than standard profit, it is known as Favourable Variance and
as such a variance is usually a sign of efficiency of the organization.
On the other hand when actual cost is more than standard cost or
actual profit is less than standard profit or turnover, it is called
unfavourable or adverse variance is usually an indicator of
inefficiency of the Organization.
 Analysis of Variances may be done in respect of
each element of cost and sales, viz.,
1. Direct Material Variances
2. Direct Labour Variances
3. Overhead Variances
4. Sales Variances
Variance Analysis includes the following steps:
1. Setting of target/standard
2. Finding of the actual
3. Comparison of actual with standard
4. Finding of variances
5. Analysis of differences/variances and ascertaining
the reasons of variances for taking appropriate
action.
 Importance/Significance of Variance Analysis
• This analysis is important to set a particular
standard in an organization.
• It is important to ensure standard/good budgeting
system in an organization.
• This analysis helps in controlling cost and achieving
maximum efficiency of performances.
• To find the reasons of differences/variances in
between standard and actual performances and to
take necessary action.
Formulae
1. Material Cost Variance(MCV): Standard cost of
material – Actual cost of materials
or, MCV = (SQ x SP) – (AQ x AP)
2. Material Price Variance(MPV): Actual
Quantity(Standard price – Actual Price)
or, MPV: AQ (SP – AP)
3. Material Usage Variance(MUV): Standard
price(Standard Quantity – Actual Quantity)
4. Material Mix variance(MMV):
Situations :- a) Before revision b) After revision
Before Revision:
i) Actual weight of mix and standard weight of mix
do not differ:
MMV: Standard unit cost (Standard Quantity –
Actual Quantity)
ii) Actual weight of mix and standard weight of mix
differ:
MMV: [Total weight of actual mix/total weight of
Standard mix x standard cost of material] –
standard cost of actual mix
Material Mix variance(MMV):
Situations: After Revision:
i) Actual weight of mix and Revised standard weight
of mix do not differ:
MMV: Standard unit cost (Revised Standard
Quantity – Actual Quantity)
ii) Actual weight of mix and Revised standard weight
of mix differ:
MMV: [Total weight of actual mix/total weight of
Revised Standard mix x standard cost of Revised
material] – standard cost of actual mix
Q. 1. The standard material required to manufacture
one unit of product A is 5 kgs.and the standard price
per kg. of material is Rs. 30. The cost accountant’s
records, however, reveal that 16,000 kgs.of material
costing Rs. 5,20,000 were used for producing 3,000
units of product A. Calculate the variances.
Q.2. From the following, calculate variances
Materials SQ(units) AQ(units) SP(Rs.) AP(Rs.)
A 100 150 5 5.50
B 200 250 6 6.00
C 300 400 4 3.50
Q.3. From the following information calculate the
MMV
Material SQ(units) AQ(Units) SP(Rs.) AP(Rs.)
A 100 150 5 5.50
B 200 250 6 6.00
C 300 400 4 3.50
Due to shortage of B, it was decided to reduce
consumption of B by 5% and increase that A by 10%
Q.4. Calculate MMV from the following.
Material Standard Actual
A 200 units@Rs.12 160
units@13
B 100 units@Rs.10 140
units@10
Due to shortage of material A, it was decided to
reduce consumption of A by 15% and increase that
of material B by 30%
Q.5. From the following particulars find out: a. MCV b.
MPV c. MUV
Quantity of material purchased 3000 units
Value of materials purchased Rs. 9,000
Std qty of material required per tonne of finished
products 25 units
Std rate of material Rs. 2 per unit
Opening stock of material Nil
Closing stock of material 500 units
Finished production during the year 80 tonnes
Q.6. From the following particulars find out: a. MCV b.
MPV c. MUV
Quantity of material purchased 3000 units
Value of materials purchased Rs. 14,000
Std qty of material required per tonne of finished
products 20 units
Std rate of material Rs. 5 per unit
Opening stock of material 100 units
Closing stock of material 600 units
Finished production during the year 100 tonnes