Break-even analysis (BEA) is used by firms to understand the relationship between costs, prices, and profits. BEA determines the sales volume needed for total revenue to equal total costs, known as the break-even point. The break-even point formula is: BEP = Fixed Costs / (Selling Price - Variable Cost per Unit). BEA can be used to analyze the impact of new products, price changes, and changes in costs on overall profitability. It also helps firms determine the optimal output level and target capacity.

1. "If you just record what the teachers say, you dont learn anything"

2. Break Even Analysis(BEA) It is necessary for a firm to plan its profit. So it should understand the relationship Of Cost, Price, and Profit. The most important method of determining is Break-Even Analysis. Break Even Point = Total Revenue – Total Cost i.e No – Profit -- No loss Point

3. Assumptions of Break-Even Analysis Fixed costs are constant,only variable costs change. The Firm produces only one product. Selling price remains constant, does not change with volume of scale. Constant-technology Costs and revenue change with changes in sales volume

4. Break-Even Analysis Formula:- BEP= Fixed costs Selling Price - Variable Costs per unit Example: If Fixed costs= Rs10,000 Selling Price =Rs 5P.U Variable Costs =Rs 3 P.U Rs. 10,000 BEP= ______________ 5 -- 3 BEP = 5000 units

5. Diagram of Break Even Point Output Revenue and Costs TR TC TFC Break Even Point Profits Loss 0 Q X Y

6. Diagram of Break Even Point Output Revenue and Costs TR TC TFC Break Even Point Profits Loss 0 Q X Y TVC

7. Uses of Break – Even Analysis What happens to overall profitability when a new product is introduced? What level of sales is needed to cover all costs and earn, say Rs 1,00,000 profit or a 12% rate of return? What happens to revenues and costs if the price of one of a company’s product is hanged? What happens to overall profitability if a company purchases new capital equipment or incurs higher or lower fixed or variable costs?

8. Between two alternative investments which one offers the greater margin of profit (safety)? What are the revenue and cost implication of changing the process of production? Should one make buy or lease capital equipments? Uses of Break – Even Analysis

9. Advantages of break even analysis in Managerial decision making It helps in determining the optimum level of output below which it would not be profitable for a firm to produce It helps in determining the target capacity for a firm to get the benefit of minimum unit cost of production. The firm can determine minimum cost for a given level of output.

10. Advantages of break even analysis in Managerial decision making It helps the firm in deciding which products are to be produced and which are to be brought by the firm. Plant expansion and contraction decisions are often based on the break even analysis of the perceived situation. Impact of changes in prices and costs on profit of the firm can also be analyzed with the help of break even technique.

11. Advantages of break even analysis in Managerial decision making Sometimes a management has to take decisions regarding dropping or adding a product to the product line. The break even analysis comes very handy in such situation. It evaluates the percentage financial yield from a project and thereby helps in the choice between various alternatives projects

12. Advantages of break even analysis in Managerial decision making The break even analysis can be used in finding the selling price which would prove most profitable for the firm By finding out the break even point the break even analysis helps in establishing point where from the firm can start payment of dividend to its shareholders