Break Even Point is the point at which total revenue equals total costs. It is calculated as Total Fixed Costs divided by the difference between Selling Price and Average Variable Cost per unit. BEP analysis determines the sales volume needed to cover fixed and variable costs. Sales above the BEP generate profits, while sales below the BEP result in losses. BEP is used in business decision making, pricing, sales projections, and other areas. It works best under assumptions of linear costs and revenues and constant prices, but has limitations as it ignores market factors and is static.

2. 1. Break Even Point is the point at which total revenue
equals to total cost.
2. Finance: point at which revenues equal costs. The point
is located by break-even analysis, which determines the
volume of sales at which fixed and variable costs will
be covered. All sales over the break-even point produce
profits; any drop in sales below that point will produce
losses.
3. Real estate: Occupancy level needed to pay for
operating expenses and debt service, but leaving no
cash flow.
4. Securities: Price at which a transaction produces
neither a gain nor a loss.

5. BEP=TFC/P-AVC
Where,
BEP=Break even Point
TFC=total fixed cost
P= The selling Price
AVC= Average variable cost
P-AVC ( contribution margin
Per unit)

6. Example 1 –
How many Christmas trees need to be
sold ?
 Wholesale price per tree is $8.00
 Fixed cost is $30,000
 Variable cost per tree is $5.00
 Solution
BEP= TFC/(P – AVC) = $30,000/($8 - $5)
= $30,000/$3 = 10,000 trees

7.  BEP=TFC/CR
 Where,
 CR(Contribution Ratio)=TR-TVC/TR
 TR=total revenue
 TVC=Total variable cost
BEP in sales value

8. Assumptions in BEP
 Cost function & revenue function are linear.
 Total cost is divided into fixed & variable cost.
 Selling price is constant.
 The volume of sales & the volume of production are
identical.
 Average & marginal productivity of factors are
constant.
 Product mix is stable(incase of MNC).
 Factor price is constant.

9.  Economic research.
 Business decision making.
 Investment analysis.
 Public policies.
 Pricing.
 Capital budgeting.
 Sales projection.

10.  Static.
 Unrealistic.
 Shortcomings.
 Limit to short run.
 Ignore market factors.
 Not a perfect substitute.
Limitation of BEP