This document discusses break-even analysis, which is a method used to determine the minimum sales level required for a company to start making a profit. It examines the relationship between costs and sales volume. The break-even point is where total revenues equal total costs - there is no net profit or loss. Linear break-even analysis can graph costs and revenues at different production levels to determine the break-even point quantity. The document outlines algebraic and chart methods for calculating the break-even point quantity algebraically or graphically.

1. BREAK-EVEN ANALYSIS
By:
Rahat Inayat Ali

2. INTRODUCTION
It is a method for finding out
the minimum level of sales
necessary for a firm to just
start to make a profit
It examines the cost tradeoffs
associated with demand
volume.

3. Break-even analysis is analysis
of total costs-sale of product-
total revenue
Meaning

4. Break even analysis is actually an
analysis of break even point
Break Even Point
In economics it is the point at
which cost or expenses and
income are equal - there is no
net loss or gain, one has
"broken even".

5. The break even point for a product
is the point where total revenue
received equals total costs associated
with the sale of the product
i.e. CT=RT
CT = total costs
RT = total revenues

6. Linear Breakeven Analysis
Cost
Quantity (Q)
Break Even Point
Profit
loss

7. Break-even analysis
Break-even analysis can be an
effective tool in determining
the cost effectiveness of a
product.
Required quantities to avoid
loss.

8. When total revenue is equal to
total cost the process is at the
break-even point.
TC = TR
Use as a comparison tool for
making a decision

9. Solution methods
1. ALGEBRIC : BEP quantity is calculated by the profit
equation: Profit=Revenues-cost
2. BY CHART: In its simplest form, the break even chart is
a graphical representation of costs at various levels of
activity shown on the same chart as the variation of
income.
1. ALGEBRIC METHOD
q = quantity of product and quantity sold
cv = variable cost per unit
p = selling price per unit
CF = total fixed cost per unit
CV = progressive variable costs per year
CT = total costs per year
RT = total revenues per year
CT = CF + CV = CF + cv x q
RT = p x q
B.E.P. occurs
when CT=RT