be analysis final

7/28/2019 BE Analysis Final

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PRESENTED BY

NAYANA SAWANT (SMBA06-ROLL NO.12)

JAYSHREE MAHATO

RASHMI MHATRE

BREAK EVEN ANALYSISPROF. BAWA TP SINGH


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Meaning of Break Even Analysis

Study of the mathematical relationship between costs and sales

revenue, under a given set of assumptions regarding the firm's fixedcosts and variable costs.

Break Even Formula

Q = FC / (UP - VC)

where:

Q = Break-even Point, i.e., Units of production (Q),

FC = Fixed Costs,

VC = Variable Costs per Unit UP = Unit Price

Therefore,

Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)


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Advantages of Break Even Analysis

Break even analysis enables a business organization to

Measure profit and loses at different levels of production

and sales.

To predict the effect of changes in price of sales.

To analysis the relationship between fixed cost and

variable cost.

To predict the effect on profitability if changes in cost and

efficiency.


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Disadvantages of Break Even Analysis

Assumes that sales prices are constant at all levels ofoutput.

Assumes production and sales are the same.

Break even charts may be time consuming to prepare.

It can only apply to a single product or single mix of

products.


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Operation costs are divided into 2 main

groups

Fixed cost

Include rent, property tax, property

insurance, wages of permanent employees,depreciation (except in working hour

depreciation).


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Total Fixed Cost and Fixed Cost per Unit of

Product

Total fixed cost

(F)

Production volume (Q)

Fixed cost per unit of product

(F/Q)

Production volume (Q)

6


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Variable cost

Costs of raw material, packaging material,

direct labor, production W&P are the main

variable costs.


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Variable Cost per Unit and Total Variable Costs

Total Variable costs

(VQ)

Variable costsPer unit of product

(V)

Production volume (Q) Production volume (Q)

8


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Amount

($)

0Q (volume in units)

Total Fixed cost (F)

Total Costs

9


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Total Revenue

It is assumed that the price of the product is fixed,

and we sell whatever we produce.Total sales revenue depends on the production level.

The higher the production, the higher the total sales

revenue.

Total revenue

(TR)

Production (and sales ) (Q)

Price per unit(P)

Production (and sales) (Q)10


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Amount(

$)

Q (volume in units)0 BEP units

Break-Even Point

11


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EXAMPLE

For example, suppose that your fixed cost for producing,100,000 product were Rs. 30,000/- a year.

Your variable costs are Rs.2.20 materials, Rs.4 labor, and

Rs. 0.8 overhead, for total of Rs. 7 per unit.

If you choose a selling price of Rs.12 for each product then

30,000 divided by (12-7) equals to 60,000 units.

This is the number of products that have to be sold at

selling price of Rs.12 before your business will start to

make a profit.


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Conclusion

Break even analysis should be distinguish from two othermanagerial tools:-

Flexible budget and standard cost the variable expenses

budget is built on the same basic cost-output relationship,

but it is confined to costs and is primarily can concernedwith the components of combined cost since the purpose

is to control cost by developing expenses standards that

are flexibly to achieving rate this purpose often leads to

measures of achieving that differ among cost and

operation so that they can be readily added or translated

into an index of output for the enterprises as a whole

standard costs on the other hand on.


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