Presentation on BEP

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Break Even Point

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Presentation on BEP

  1. 1. 1. Break Even Point is the point at which total revenue equals to total cost.2. Finance: point at which revenues equal costs. The point is located by break-even analysis, which determines the volume of sales at which fixed and variable costs will be covered. All sales over the break-even point produce profits; any drop in sales below that point will produce losses.3. Real estate: Occupancy level needed to pay for operating expenses and debt service, but leaving no cash flow.4. Securities: Price at which a transaction produces neither a gain nor a loss.
  2. 2. BEP=TFC/P-AVCWhere,BEP=Break even PointTFC=total fixed costP= The selling PriceAVC= Average variable costP-AVC ( contribution marginPer unit)
  3. 3. Example 1 – How many Christmas trees need to be sold ? Wholesale price per tree is $8.00 Fixed cost is $30,000 Variable cost per tree is $5.00 Solution BEP= TFC/(P – AVC) = $30,000/($8 - $5) = $30,000/$3 = 10,000 trees
  4. 4.  BEP=TFC/CR Where, CR(Contribution Ratio)=TR-TVC/TR TR=total revenue TVC=Total variable costBEP in sales value
  5. 5. Assumptions in BEP Cost function & revenue function are linear. Total cost is divided into fixed & variable cost. Selling price is constant. The volume of sales & the volume of production are identical. Average & marginal productivity of factors are constant. Product mix is stable(incase of MNC). Factor price is constant.
  6. 6.  Economic research. Business decision making. Investment analysis. Public policies. Pricing. Capital budgeting. Sales projection.
  7. 7.  Static. Unrealistic. Shortcomings. Limit to short run. Ignore market factors. Not a perfect substitute.Limitation of BEP

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