break even analysis

1. A PRESENTATION ON
ENGINEERING ECONOMICS AND MANAGEMENT
DEPARTMENT OF CIVIL ENGINEERING
PARUL INSTITUTE OF ENGINEERING & TEC.
P.O.LIMDA,TA.WAGHODIA,DIST.BARODA.
PIN-391760,GUJRAT,INDIA
[2014-2015]

3. INTRODUCTION
• The break even analysis is a necessary consideration for every
entrepreneur who is not assured of rewards in relation to the
efforts.
• The break even analysis is based on the cost behaviour pattern to the
level of production.
• The BEA explains this relationship as an important tool of pricing
decisions.
• The BEA deals with the production level resulting into a no-profit ,
no-loss situation.

4. • The above figure indicates that the company has an installed production
capacity of 5000 units. At the production level of 2000 units, it will neither
have no profits nor losses. Thus, the production level of 2000 units will be
treated as a Break Even Point (BEP).
• (i) At 2000 units ---- company breaks-even
• (ii) Below 2000 units ----it will have no losses.
• (iii) Above 2000units ----it will earn profits.
EXAMPLE:

5. • The break even point is a crutial consideration in the profit planning and
control.
• Profit is a positive difference between the sales and costs.
PROFITS = SALES - COSTS

6. 1. Break even point is that level of production where it results into
no profit-no loss.
2. Break even point : Total Sales= Total Costs
3. Break even point : Total Contribution= Total fixed cost
DEFINITION OF BREAK EVEN POINT

7. EXPLANATION TO BEA
• BEA is a point where…..
1 .Total Revenue = Total Costs
2 .Total Fixed Costs = Total Contribution
3 .Total Fixed Costs/PV ratio
• The Break Even Analysis can be explained :
1. Algebrically
2. Graphically

8. BEA IN GRAPHICAL PRESENTATION
• There are two types of graphic presentation :
1. First Fixed Costs are plotted parallel to X-axis & then variable costs
are plotted.
2. First Variable Costs are plotted and above it, Fixed costs are plotted.

9. X-axis : QUANTITY
Y-axis : SALES & COSTS

10. STRATEGIC SHIFT OF BEP
• The shift of BEP on left-hand side in the graph indicates the efficiency.
BEP can be shifted on the left-hand by below-mentioned strategies :
1. TO INCREASE THE SELLING PRICE PER UNIT.
2. DECREASE IN VARIABLE COST PER UNIT.
3. DECREASE IN FIXED COSTS.