2. Contents :
1. Break Even Analysis:
i. Meaning of BEA
ii. Determinants of BEP
iii. Simple Problems on BEP
3. Meaning of Break-even Analysis
• Break-even analysis refers to analysis of the break-
even point (BEP).
• The BEP is defined as a no-profit or no-loss point or
total cost equal to total revenue (TC = TR)
• It is also called the cost-volume-profit analysis (Cost,
Price, Volume, Revenue & Profit)
• Why is it necessary to determine the BEP when there is
neither profit nor loss?
• It is important because it denotes the minimum volume
of production to be undertaken to avoid losses.
5. Determinants of BEP
• Following key terms are used to determine BEP
i. Selling price = FC + VC + Profit
ii. Contribution = FC + Profit = Selling price-VC
iii. BEP in units = FC / Contribution Margin per unit
iv. BEP in Value = FC/Contribution Margin Ratio
v. Contribution Margin Ratio =
= Selling Price – VC per unit /Selling Price per unit
vi. Margin of Safety (units) = No. of Units sold - BEP
6. Practice Problem on BEP
• Problem: A firm has a fixed cost of Rs. 10,000/-,
selling price per unit is Rs. 5/- and variable cost per unit
is Rs. 3/- (a) Determine BEP in terms of volume and
also sale value (b) Calculate the margin of safety
considering that the actual production is 8000 units.
7. Assignment Problems on BEP
• Example 1: If sales in 10,000 units and selling price Rs.
20/- per unit. Variable cost is Rs. 10/- per unit and fixed
cost is Rs. 80,000/-. Find out BEP in units and sales
revenue what is profit earned? What should be the sales
for earning a profit of Rs. 60,000/-
• Example 2 : A company makes a single product with a
sales price of Rs. 10/-, Variable cost of Rs. 6/- per unit
and fixed cost is Rs. 60,000/- (a) Calculate BEP in
volume and value (b) What number of units will need to
be sold at achieve a profit of Rs. 10,000/- (c) What is
the margin of safety considering that the actual
production is 20,000/- units.
