18537479 break even analysis
TRANSCRIPT
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BREAK EVEN ANALYSIS
PRESENTED BY:
Aditya Agarwal
Dhingra Mohit
Nischinth BharadwajSindhu Chandra
Shweta Madaan
K.Vyshali
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BREAK EVEN ANALYSIS
Definition
A break even analysis indicates at what level
cost and revenue are in equilibrium
Also known as Cost-Volume-Profit[C-V-P]
analysis.
A breakeven analysis is used to determinehow much sales volume your business needs
to start making a profit.
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BREAK EVEN POINT [BEP]
Point of Zero Profit
Cost of the firm = Revenues
ASSUMPTIONS
Sales price of products is assumed constant.
All costs are either perfectly variable or absolutely fixedover the entire period of production.
Volume of production = volume of sales
Assumption of stable product mix. All revenue is perfectly variable with the physical
volume of production.
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METHODS TO CALCULATE BEP
Break even chart
Algebraic method
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BREAK EVEN CHART
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NON-LINEAR CHART
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ALGEBRAIC METHOD
TR=(P)(Q)
TC=TFC+TVC
TC=TFC+AVC(Q)
At break even, TR=TC
QB= TFC/(P-AVC)
Where QB=break-even quantity
TFC= total fixed costP=price
AVC= average variable cost
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BREAK EVEN SALES VALUE
SB=TFC/CONTRIBUTION RATIO
Where TFC=total fixed cost
CONTRIBUTION RATIO= TR-TVC/TR
Where TR=total revenue
TVC=total variable cost
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Problem
A Company has fixed costs of $3000 this period.
Direct labor is $3.25 per unit, and material is $
1.75 per unit. The selling price is $ 12.50 per unit.
Break-even point in dollars and in units(?)
Fixed Cost=$3000
Variable Cost=$5.00(3.25+1.75)
No of Units=50
Unit Price=$12.50
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Breakeven Analysis
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
050
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
NET UNITS (000)
COST-VOLUME
-PROFI
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USES
Helps in determining the optimal level of
output.
Determines the minimum cost for the given
level of output.
Make or buy decisions.
Helps in plant expansion/contraction
decisions.
Finding the selling price which would prove
most profitable to the firm.
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MANAGERIAL USES
Safety Margin Decisions
Safety margin=[(sales-BEP)/sales]*100
Target Profit
Technique of forecasting
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LIMITATIONS
Adjustments in factor prices
Unrealistic assumptions
Static Applicable only for proper managerial
accounting techniques
Selling costs
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CONCLUSION
It is simple, easily understandable and quite
inexpensive.
Focuses attention on fundamental
relationships.
Can be used for various purposes.
Suitable to those industries which are not
subject to fast change in technology and input
prices.
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THANK YOU