Break Even Analysis refers to analyzing the break-even point (BEP), which is the point at which total revenue equals total cost, resulting in no profit or loss. The BEP denotes the minimum production volume needed to avoid losses. Determinants of BEP include selling price, contribution margin, contribution margin ratio, fixed costs, and variable costs per unit. Examples then demonstrate calculating BEP in terms of units and sales value, margin of safety, and production needed to achieve a specified profit level.

1. Break Even Analysis

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.

4. Graphical Representation of BEP

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.

8. THANK YOU