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BREAK-EVEN MODEL
Name:
Roll No. 21-NTU-KC-TMM-043
Semester: 2nd
Course Title: BUSINESS MATH-I
Course Code: (MA-1003)
Teacher: Dr. Hamza Khan
Presentation No.2
Break-Even Point
 The basic objective of break-even point analysis is to ascertain the
number of units of products that must be sold for the company to
operate without loss. In other words, the no-profit-no-loss point is the
break-even point.
 Sales below the break-even point mean a loss, while any sales made
above the break-even point lead to profits.
Formula For Break-Even Point
As you will be aware, profit can be calculated as sales revenues minus
costs, where costs are either variable or fixed. That is to say,
Profit = Sales revenue – Variable costs – Fixed costs
where the sales revenue at break-even point = Fixed cost + Variable cost
This equation can be restated as follows:
Profit = (Unit sales price x Sales volume in units) – (Unit variable cost
x Sales volume in units) – Fixed costs
Uses Of Break Even method
 It helps in the determination of selling price which will give the desired profits.
 It helps in the fixation of sales volume to cover a given return on capital
employed.
 It helps forecast costs and profit due to changes in volume.
 It gives suggestions for a shift in the sales mix.
 It helps in making an inter-firm comparison of profitability.
 It helps in the determination of costs and revenue at various levels of output.
 It is an aid in management decision-making (e.g., make or buy, introducing a
product, etc.), forecasting, long-term planning and maintaining profitability.
How to use a break-even analysis to
make business decisions
There are many ways in which a breakeven analysis can help an
entrepreneur to make important business decisions. You can use breakeven
analysis to figure out how any number of variables in cost, price, and
quantity sold can impact your business’s profitability.
 Cost calculation
A breakeven analysis can help you to decide if your business will remain
profitable if you increase your company’s fixed costs—if you choose to
move to a bigger and more expensive office space, for instance, or hire
another salaried employee.
 Budgeting and setting targets
A breakeven analysis can also help you budget by giving you a sense of
what your profitability will look like in an upcoming month, quarter, or
year
 Motivational tool
A breakeven analysis can help you to set sales benchmarks for yourself and
your employees and motivate you to work harder when you know that your
profitability is at stake.
 Margin of safety
A margin of safety is the difference between the amount of expected
profitability and the breakeven point. By comparing the breakeven point
with the expected profitability you can easily flag when sales aren’t on
track to be profitable and make you money.

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break even .pptx

  • 1. BREAK-EVEN MODEL Name: Roll No. 21-NTU-KC-TMM-043 Semester: 2nd Course Title: BUSINESS MATH-I Course Code: (MA-1003) Teacher: Dr. Hamza Khan Presentation No.2
  • 2. Break-Even Point  The basic objective of break-even point analysis is to ascertain the number of units of products that must be sold for the company to operate without loss. In other words, the no-profit-no-loss point is the break-even point.  Sales below the break-even point mean a loss, while any sales made above the break-even point lead to profits.
  • 3. Formula For Break-Even Point As you will be aware, profit can be calculated as sales revenues minus costs, where costs are either variable or fixed. That is to say, Profit = Sales revenue – Variable costs – Fixed costs where the sales revenue at break-even point = Fixed cost + Variable cost This equation can be restated as follows: Profit = (Unit sales price x Sales volume in units) – (Unit variable cost x Sales volume in units) – Fixed costs
  • 4. Uses Of Break Even method  It helps in the determination of selling price which will give the desired profits.  It helps in the fixation of sales volume to cover a given return on capital employed.  It helps forecast costs and profit due to changes in volume.  It gives suggestions for a shift in the sales mix.  It helps in making an inter-firm comparison of profitability.  It helps in the determination of costs and revenue at various levels of output.  It is an aid in management decision-making (e.g., make or buy, introducing a product, etc.), forecasting, long-term planning and maintaining profitability.
  • 5. How to use a break-even analysis to make business decisions There are many ways in which a breakeven analysis can help an entrepreneur to make important business decisions. You can use breakeven analysis to figure out how any number of variables in cost, price, and quantity sold can impact your business’s profitability.
  • 6.  Cost calculation A breakeven analysis can help you to decide if your business will remain profitable if you increase your company’s fixed costs—if you choose to move to a bigger and more expensive office space, for instance, or hire another salaried employee.  Budgeting and setting targets A breakeven analysis can also help you budget by giving you a sense of what your profitability will look like in an upcoming month, quarter, or year
  • 7.  Motivational tool A breakeven analysis can help you to set sales benchmarks for yourself and your employees and motivate you to work harder when you know that your profitability is at stake.  Margin of safety A margin of safety is the difference between the amount of expected profitability and the breakeven point. By comparing the breakeven point with the expected profitability you can easily flag when sales aren’t on track to be profitable and make you money.