Mr.K.Vinothkumar, Ass Prof, Mechanical, SRMIST, Ramapuram

1. Breakeven Analysis

2. An investment is made and product is produced when the
product is sold profit is obtained. However for some
specified quantity of sales the profit obtained will be
equal to the investment. Any sales above this specified
quantity will provide the actual profit. The point when the
specified quantity of sale as taken place is called
breakeven point. In other words the profit for the first
specified quantity of sale equals the investment cost than
breakeven is obtained. At Breakeven point (BEP) there is
no-lose or no-profit at a point.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

3. Reason for monitor Breakeven Analysis
 Pricing analysis
 Technology analysis
 Cost analysis
 Margin analysis
 Outsourcing
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

4. (i) Various type of cost is categorized in to fixed cost
and variable costs.
(ii) The Fixed costs are considered has the cost for in
movable and one time purchase cost. this would remain
same with respect to volume of production.
(iii) The Variable costs are considered has the cost for
consumable and raw materials which vary with respect
to volume of production.
(iv) The Selling price of the product will remain constant.
(v) All the produced goods are sold.
(viii) There is no change in the product price.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

5. 1. In vertical axis taken as Cost and Revenue in rupees.
2. In horizontal axis taken as volume of output/ units.
3. The total fixed costs is represent by a straight line is parallel to
the horizontal line.
4. The sale income line is passing through the origin.
5. Total costs means summation of fixed costs plus variable costs.
Then plot the straight line starting at the same point as the fixed
costs.
6. The point of intersecting of the sales income line and total cost
line and total cost represent the is called breakeven point (BEP)
and at a point the units of sales output to give the breakeven level
of sales (BES).
7. The gap between the sales revenue line and total costs line on the
right hand side of breakeven point indicates the profit and where
as the left hand side of breakeven point indicates the loss.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

7.  The Breakeven analysis is a valuable management tool
 To decide to “Make or buy” a given component.
 To ascertain the profit on a fixation of sales volume to
return on capital employed.
 To compare the sales area, production line, methods of sale
for individual company.
 It helps in determination of costs of production and revenue
of the company at various levels of production output.
 To decide what promotion mix will yield optimum sales.
 It helps to the determination of selling price of the product
which will give the desired profits.
 To comparing efficiency of the different firms.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

8.  In Break-even analysis is based on the fixed cost,
variable cost and sales revenue. If a change in any one
variable to affect the breakeven point.
 All the costs are cannot be classified into fixed cost
and variable cost. We have to consider the semi-
variable costs also.
 In case of multi product firm, a single chart cannot be
of any use.
 The Break even analysis assumption for selling price
remains unchanged gives a straight revenue line which
may not be true.
 The business conditions are volatile, Breakeven cannot
give stable result.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram

9. Application of break-even analysis
1. Make or buy decision
 The breakeven analysis aided to confronted “Make or
buy” the product. Where the large quantity
requirements, making may be economical.
2. Production planning
 The breakeven analysis used in production planning
of product giving maximum profit and fixed costs.
3. Financial structure
 In this methods understanding the behavior of profits
in relation to production volume.
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Mr.K.Vinothkumar, Ass Prof,
Mechanical, SRMIST, Ramapuram