BEP of an enterprise is the turnover for which this enterprise has realized neither profit nor loss. The sales are equal to total corresponding costs.

1. Catholic university of Cameroon (CATUC), Bamenda
Faculty of Business and Management Sciences (FBMS)
Department of Accounting
Level: 300
COST AND MANAGEMENT ACCOUNTING (OHADA
STANDARD)
Course code:
Ass. Lecturer: Gopti Emmanuel Nchamcham

2. UNIT: TWO
THE COST- VOLUME- PROFIT - ANALYSES
It is sometimes refers to as the Break-even point (BEP).
DEFINITION: BEP of an enterprise is the turnover for
which this enterprise has realized neither profit or loss.
The sales are equal to total corresponding charges.
DIFFERENT EXPRESSIONS OF BEP
1. EXPLOITATION RESULT = 0
2. TURNOVER = TOTAL CHARGES (VC+FC)
3. MARGIN ON VARIABLE COST = FIXED CHARGES

3. A. CALCULATION OF BREAK EVENT
POINT (BEP)
1. PRINCIPLES:
The margin on variable cost can be proportional to the
turnover such that: margin on variable cost = K
TURNOVER
WHERE K is a constant
To calculate BEP is to calculate the proportionality so
that,
% mvc = Fixed cost
% TO BEP

4. EXAMPLE 1
After the determination of variable and fixed
charges, the exploitation account of ETS PHILCAM
for 2022 was summarized as follows;
Work to do:
For which turnover does this enterprise attains its
break – even point?
Elements Amounts %
Turnover
Variable cost
Margin on variable cost (m/)
Fixed charges
Exploitation result
250 000
200 000
50 000
- 30 000
20 000
100
80
20

5. B. GRAPHICAL REPRESENTATION OF
BEP
1. With the relation M/VC=FC
2. With the relation TURNOVER (TO) = TOTAL
CHARGES
3. With the relation exploitation result = 0

6. EXAMPLE
The yearly sales of an enterprise amounted to 2
000 000frs. The variable charges for the period
were 1 125 000frs and fixed charges 525 000frs.
Work to do:
1. Present the differential operating table
2. Determine the BEP and present the various
graphs.

7. CONTRIBUTION MARGIN
Contribution Margin is the amount left (balance) from
sales revenue after variable charges have been deducted.
It is from this amount that fixed cost is deducted in order
to obtain the exploitation result of the period.
a. Contribution Margin Ratio (CMR):
The proportion of contribution margin to total sales.
CMR = CM
T.O
The ratio is particularly useful in that it shows the extend
to which contribution margin will be affected by a given
change in total sales.

8. Example
Let’s consider the previous example and;
1. Present the differential table of exploitation
2. If sales increased to 2 200 000frs, present the
differential table assuming that fixed charges
remains unchanged
3. Show directly the change in net profit.

9. Safety (Security) Margin
The difference between the turnover and the break-even-point. This
margin represents the decrease in turnover the enterprise can bear
without realising a loss.
Security or safety main =TURNOVER-BEP
THE SAFETY INDEX
The relative security margin is the ratio between the security margin
and the turnover. It is equally the fraction of turnover whose
contribution margin gives the profit.
Safety index = safety margin
Turnover
Example:
Let us consider the previous example above and calculate the safety
margin and safety index

10. OPERATING LEVERAGE
The degree of operating leverage is a multiple that
measures how much the operating income of an
enterprise will change in response to a change in turnover.
It is greater for enterprises that have a high proportion of
fixed cost in relation to variable cost.
It helps to measure the percentage change inoperating
income that takes place as a result of percentage change in
unit sales.
Degree of operating leverage
DOL=% in operating profit
% in sales
the above formulae can be manipulated to read as follows:

11. DOL = Q(P-VC)
Q(P-VC)-FC
= QP-QVC
QP-QVC-FC
WHERE:
Q= quanity at which DOL is computed
P= price per unit
VC= variable cost per unit
FC= fixed cost
QVC= total Variable cost
QP= Sales
Example
From the above example determine the degree of operating leverage

12. Sales mix and break- even analysis
If a company is selling more than one product,
the break even analysis is some how complex.
The reason being that different products
normally have different selling prices, different
cost and different contribution margins.
Consequently, the break even point will be
difficult to determine when several products are
sold.

13. Example
ETS BITAMA at Commercial Avenue produces two
products A and B. the information concerning these
products are shown below.
Work to do:
Determine the break-even point of the mix
products
Elements Product A Product B
Sales
Variable charges
Fixed charges
300 000
250 000
270 000
900 000
500 000
270 000

14. TIME AND BREAK- EVEN - ANALYSIS
Knowing the break-even in sales amount is very
necessary and knowing when the BEP will be
attained is equally very important. This depends
on whether the company’s activity is continuous
over the year or not.

15. Case of continuous activities
Time or Date of BEP= BEP X 12 Months
Sales
EXAMPLE.
The yearly sales of an enterprise amounted to 1 000
000f, the variable charges for the period is 625
000frsf and fixed charges 262 500f.
Work required:
Determine the BEP and date at which it shall be
reached

16. Case of irregular or discontinuous
activities
Some firms carry out activities which are not
regular through out the year. Their activities are
seasonal. When the activity is irregular or when
there is an interruption, the formulae used
above should be modified.
Date or Time of BEP = BEP X (12-n)
sales

17. Example
Assume that the sales of 1 000 000f is obtained by adding up the following
sales:
1st term 100 000
2nd term 200 000
3rd term 300 000
4th term 400 000
In addition, the cumulative total sales and contribution margins are given in
the following table:
Work to do:
Determine the BEP and BEP time knowing that fixed charges remain
unchanged at 262 500f.
Elements Cumulative sales Cumulative contribution
margin
1st term
2nd term
3rd term
4th term
100 000
300 000
600 000
1 000 000
37 500
112 500
225 000
375 000

18. BREAK-EVEN POINT IN PROVISION
Example:
What should be the sales of the enterprise in
the above, if the result needed is 7 500 000f
other elements remain unchanged.

19. Break even analysis and modifications
The production structure of a firm is modified when a
new fixed asset is acquired. This is manifested by an
increase in fixed cost. If this is carried out in the cause of
the financial year, the break even point changes.
Example:
The contribution margin ratio of a firm is 25%, fixed cost
is 100 000f. An expected annual sales is 1 000 000f. In July
2022, a new machine was acquired which raised the fixed
charges to 160 000f. The information remains unchanged.
Work to do;
1. Calculate the BEP for each structure
2. Present the corresponding BEP CHART

20. END