This document discusses break even analysis, which determines the sales volume needed for a business to make a profit. It explains that break even analysis helps managers make informed decisions about new products, equipment, and pricing. The document provides the algebraic formula for calculating break even point and illustrates break even analysis for a company called Surf. Examples are given of Rajiv Gandhi Setu bridge, which fell short of its break even daily collection target, and Jumbo King Vada Pav restaurants, which achieved success and sustained profits through strategic franchise expansion near railway stations.

1. The Break Even Point And Its Economic Significance

2. As an entrepreneur, what you want to know? How many goods do we have to sell before we start making money? If we sell 100,000 units, what will our profit be? What will be more profitable make or buy?

3. The answer to all of these is … Breakeven Analysis: A decision-making aid that enables a manager to determine whether a particular volume of sales will result in losses or profits.

4. Break even analysis It is a planning and control technique. 1) Planning: Make informed decisions 2) Control: Constant checks

5. Break even point A break even point indicates at what level cost & revenue are in equilibrium It is a point of indifference, where losses cease to occur while profit have not yet begun

7. Variable costs

8. Contribution Margin

9. Revenue

11. Volume of production & volume of sales are equal

12. Sales price of product is constant

13. Constant rate of increase in variable cost

14. No improvement in technology & labor efficiency

16. The target capacity of a firm to get the benefit of minimum per unit production cost

17. Minimum cost for a given level of output

18. Selling price for a product

20. Impact of Purchasing new capital equipment

21. Should one make, buy or lease capital equipment

22. Revenue & cost implications of changing the process of production

24. Graphical method

27. Algebraic approach contd… Break even point of sales 1. Fixed Cost x SP per unit Contribution per unit Fixed cost x Total sales Total contribution

28. Break Even Analysis of Surf Total Sales Total Variable Cost Total Fixed Cost

29. Break even analysis Break even(2005) = Fixed cost x Total sales Total contribution = RS 5,991,714 Break Even(2004) = Rs 7,521,253 Break Even (2003) = Rs 6,808,887

30. Break even analysis TC Revenue VC FC Sales 2004 2005 2003

31. Break even analysis TC Costs VC Profit Loss FC Sales 2004

33. Rajiv Gandhi Setu A classic example of break even Failure What went wrong ? Increase in the initial project cost from Rs 1300 cr. to Rs 1650 cr. Project 65,000 vehicles to use the bridge, but only 40,000 actually taking it High toll tax

36. Chose the method of Franchisee model like McDonalds with networking and stringent quality control.

39. Current situation Average demand: 5000 Vada pavs per day Average revenue: 60,000 per day Projected break even period 4 months

41. Total stores: 45 stores in 7 years with a profit revenue of Rs 12 cr in 2007-8 and an early breakeven falling in the same year with no reported losses thereafter.

42. Turnover of Rs 40 lakh in its first full year of operation. (first ever store)

43. The company has a turnover of Rs 8 cr (under $2 million) as on date!