m.com

1. SEMINAR ON :-
BREAK EVEN ANALYSIS
ACM:-701
SUBMITTED TO: SUBMITTED BY:
Prof. Pravin saxena Saurabh Khichi
M.Com 1st year

2. Break Even Analysis
Break Even Analysis is mainly a expansion of
marginal costing. Its objective is to determine
the level of production, where cost and
revenue are equal to each other.

3. Type of break even analysis
1. Contribution
2. Profit–Volume Ratio
3. Break Even Point
4. Margin Of Safety

4. CONTRIBUTION
The balance which is left after deducting variable costs from selling price is
known as Contribution.
Formula for calculation of contribution
C= S –V OR C= F + P
Here, F = Fixed cost
S = Sales
V = Variable Costs
C = Contribution
P = Profit

5. ADVANTAGE OF CONTRIBUTION
• To Accept or Reject the New order:-knowledge of contribution proves to be
helpful in talking decision regarding acceptance or rejection of how order. Only
extraordinary profitable processes can be operated with the help of this.
• Helpful in selection of Product Mix:- knowledge of contribution is helpful in selection
of product mix. The product mix which gives maximum contribution is selected
on the basis of priority.
• Helpful in selection of Production process:- knowledge of contribution is helpful in
selection of production process also. The process which gives maximum
contribution should be applied.
• Helpful in ascertainment of profitability:- On the basis of contribution Break Even
Point, profit-volume ratio and profitability of product or departments can be
easily ascertained. The product or department which will give maximum
contribution will be treated as profitable.

6. PROFIT-VOLUME RATIO
Profit volume ratio depicts the relation between contribution and sales price, it
signifies profitability of he organization. It profit volume ratio is given than
contribution can be calculated easily in case of increase in volume of sales. Profit
volume ratio can be calculated with the help of these formula :-
P/V Ratio = (C/S) * 100 OR (S-V)/S * 100
P/V Ratio = (F+P)/S * 100
P/V Ratio = (1 - V/S)*100
Here , P/v Ratio = profit –volume ratio
C =contribution
S= sales
V = variable
F = fixed cost
P = profit

7. ADVANTAGE OF P/V RATIO
Calculation of break even point and variable cost :- with the help of profit
volume ratio, break even point and variable cost can calculated
easily.
Comparative study is possible:- Comparative study is profitability of
various department and product of organization becomes possible
with the help of profit volume ratio.
Alternative in cost :- less profit volume ratio is suggestive of
decrease in variable cost

8. BREAK EVEN POINT
The level of minimum production where there is no
profit or no loss is known as Break Even Point i.e.
When total cost is equal to revenue.
According to Charle’s:-
“break even point is the point of activity where total
revenue and total expenses are equal, it is the point of
Zero profit”.

9. The following formulae’s are used to calculate Break Even
Point:-
a) Break Even Point (as % of capacity) = Fixed Cost *
100/Total Contribution
b) Break Even Point (in units)= Fixed Cost/Selling Price Per
Unit-Variable Cost
c) Break Even Point (in sales value)=Fixed Cost* Sales/Sales-
Variable Cost

10. Margin of safety
Margin of safety is the difference between actual total sales and Break
Even Point sales is known as “Margin of safety” and may be calculated
in rupees, unit or even in percentage from as explained below:-
1. Margin of safety in Rupees
• M.O.S = Sales – B.E.P (in rupees)
• M.O.S = (profit)/P/v ratio
2. Margin of safety in unit
• M.O.S = Sales – B.E.P (in unit)
• M.O.S = profit/contribution (per unit)

11. Thank
You