This document discusses breakeven analysis for selecting manufacturing processes. It includes: 1. Defining fixed and variable costs, and how total cost is calculated as the sum of fixed and variable costs. 2. How breakeven analysis can help choose between manufacturing processes by plotting total, fixed, and variable cost curves and finding the breakeven point where the processes have equal total costs. 3. Calculating breakeven quantity by equating the total costs of two processes and solving for quantity. 4. Two examples that calculate costs for different manufacturing options and determine the more economical process based on production quantities.

1. Manufacturing Technology II
(ME-202)
Breakeven
Analysis
Dr. Chaitanya Sharma
PhD. IIT Roorkee

2. Title of slide
Lesson Objectives
In this chapter we shall discuss the following:
1. Selection of manufacturing processes
2. Breakeven analysis
3. Break even quantity
4. Examples
Learning Activities
1. Look up
Keywords
2. View Slides;
3. Read Notes,
4. Listen to
lecture
Keywords:
Breakeven analysis, Fixed cost, Variable cost, Total cost,

3. Selection of Manufacturing Process
• An engineer has to choose a manufacturing
process which makes the required quality of
product to the specification and at lowest
cost possible.
• Breakeven analysis of the available processes
suitable for the production of the given
object help to fulfill both the conditions.

4. Breakeven Analysis
• In breakeven analysis, two cost are considered:
• Fixed costs (FC): The cost of initial investment in,
machinery, equipment and tools required for the
process. Fixed cost is constant and does not vary with
quantity produced.
• Variable cost(VC) : Includes cost of raw material,
energy consumed, labor cost, cost of special tooling and
other administrative overheads. It varies directly with
actual number of objects made.
• Total cost (TC): is the sum of fixed cost and variable
cost and may be written as : TC = FC + Q x VC
• As quantity of production increases (Q), the cost per
unit produced decreases as fixed cot remains constant.
Cost curve

5. Choosing manufacturing processes
• Engineer may choose a processes for
manufacturing among various method
by doing breakeven analysis.
1. Estimate fixed and variable costs
for available processes
2. Plot fixed cost (always horizontal)
and variable cost (inclined line).
3. Now plot total cost curve ( inclined line).
4. The point where these three curve intersect is
called breakeven point.
5. First process is economical up to breakeven
point (quantity) and beyond this second process.
Fig: Breakeven curve

6. Calculating Breakeven Quantity
• The breakeven quantity, n can be calculated by equating
the total costs of two processes i.e.
• Total cost of first process: TC1 = FC1 + Q x VC1
• Total cost of second process: TC2 = FC2 + Q x VC2
• Now Equating two total costs i.e. TC1 = TC2
FC1 + Q x VC1 = FC2 + Q x VC2
• Hence, Breakeven Quantity Q or n =
• Breakeven quantity is positive if fixed cost is greater
and variable cost less than those of second.
• If both fixed and variable cost are lower than the
other process, then the latter process is always
uneconomical whatever the quantity of production.

7. Alternative Methods
Average cost method:
• A cost comparison curve
(Fig1) can be plotted for
average cost vs. production
quantity, given by :
Relative cost method
• Curve is plotted for relative cost
per piece vs. production quantity.
Relative cost is the cost of
component in relation to any
convenient cost such that abscissa
can be represented by more
convenient units which are easier
to comprehend as shown in fig 2.
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒄𝒐𝒔𝒕 =
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚
Fig 1: Breakeven curve
Fig 2: Breakeven curve

8. Example 1:
• In manufacturing of a machined fitting involving drop
forging and machining there are two options available;
first option is to produce a blocker type forging
followed by heavy machining or a close toleranced
forging followed by finish machining: the cost are:
Find out the economical manufacturing method
for production quantities upto 1000 pieces

9. Solution: Calculate & Compare
Total Cost
Cost Blocker type
(Rs)
Close toleranced
(Rs)
Fixed cost Forging die, 33,500 65,000
Forging die setup, 2,500 3,600
Machining tooling 86,240 10,000
machining setup 7,120 1,080
Total Fixed cost 1,29,360 79,680
Variable cost Forging piece cost 160 220
m/c running cost 1,600 200
Variable cost/piece 1,760 420
Production quantity 1000 pieces
Total variable cost 17,60,000 4,20,000
Total cost 1,29,360 + 17,60,000
=18,89,360
79,680 + 4,20,000
=4,99,680
Ans Close toleranced forging method

10. Example 2:
• In the production of flap hinge the
comparison is to be made between open die
forging and blocker type closed die forging.
Both are to be followed by machining. The
cost are:
Prepare the break even analysis for above two variants.

11. Solution:
Fig: Breakeven curve

12. Some More Problems For
Practice