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    BREAK EVEN POINT ANALYSIS -$Cotha 6$

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    Arafat Hossain
    Cotha

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    BREAK EVEN POINT ANALYSIS -$Cotha 6$

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    Arafat Hossain
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    Cotha

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    Cotha

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views5 pages

    BREAK EVEN POINT ANALYSIS -$Cotha 6$

    Uploaded by

    Arafat Hossain
    Cotha

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    BREAK EVEN POINT ANALYSIS

    There are three options:-


    (1)Cost [variable & fixed cost]
    (2)Volume; (3) Profit analysis.

    Measurement:

    PROFIT: The difference between sales & total cost.

    P=S-T.C but, T.C=V+F


    =S-(V+F)
    =S-V-F
    Where, P= Profit
    T.C=Total cost
    V=Variable cost
    F=Fixed cost

    CONTRIBUTION: The difference between sales & variable cost.

    C=S-V but, P=S-V-F or, S-V=P+F


    C=P+F.

    PROFIT-VOLUME RATIO: The profit / volume ratio properly known as the p /v ratio.
    It shows the relation between sales & contribution. And also,

    P/V ratio =C/S * 100%

    BREAK-EVEN POINT: Break even point is the point at which, total sales just equal to
    the total cost. In this point there is no loss & no profit.
    So, S=T.C
    =V+F
    Then, P=S-V-F=S-S=0.
    BEP in unit =F (total)/S-V (per unit) = F/C.
    BE sales volume =F*S/(S-V) =F/(p/v ratio).
    DESIRED or TETGET SALES:
    T.S= ( (F+P)*S ) /(S-V) = (F+P) / (p/v ratio).
    Where, T.S =Target sales.

    BREAK- EVEN CHART: In the different situations, a chart is prepared with income,
    expenses & profit (amount) is called break-even chart.

    ANGLE OF INCIDENCE: The angle of incidence means angle between the sales line
    & the variable cost line. This angle is an indicator of profit earning capacity.
    SUDIPTO KUMAR GHOSH
    RUET ETE-07 01727-138371.
    Q. Explain the method of assertaining break even point.

    The break-even point can be assertained from a break-even curve as follows-

    BEP (units) = Total fixed cost / Unit contribution.


    BEP (sales unit) =Total fixed cost / p/v ratio.
    Therefore, when ratio is calculated using unit contribution and unit selling price
    We can write,
    BEP= [Total fixed cost / Unit contribution] * Unit selling price.
    But, if we taking total sales & contribution.
    Then,
    BEP = [Total fixed cost / Total contribution] * To

    Q. Draw the graphical representation of Break-even chart.

    Let, sales =3000 units, sale price = TK 10 per unit.


    Fixed cost = TK 6000, Variable cost = TK 6 per unit.

    BEP (units) = 6000/ (10-6) =1500 (units), BES =1500*10 = 15000Tk.

    Total sales =3000*10 = 30000Tk. Total variable cost = 3000*6 = 18000Tk.

    SUDIPTO KUMAR GHOSH


    RUET ETE-07 01727-138371.

    MARGINAL SAFETY: Marginal safety or margin of safety is the excess sales over and
    above the break-even point. It is an indicator of business strength. And also,
    M/S = P / c/s = Ps / c = P / p/v ratio.
    Margin of safety = Total sales – Break even sales.

    Q. What is the effect on break even point if increasing the total physical sales?

    With the increasing in total physical sales, there is no change in break even point.
    Let, S = 600 unit @ 100 Tk .
    V = 60 per unit, F = 6000 per unit
    So, BEP in unit = 6000 / (100-60) = 150 unit
    When total physical sale increase 10%,
    S = 660 unit @ 100 Tk.
    So, BEP = 6000 / (100-60) = 150 unit.
    Viz, increase in total physical sales doesn’t change break even point.

    Q. What is the effect on break even point if increasing the P/V ratio?

    When the P/V ratio increase, the BEP decreases.


    Let, S = 100 Tk per unit. F = 6000 Tk. P/V ratio = 0.4
    So, BEP in unit = [F/S] / [P/V ratio] = 60 / 0.4 = 150 unit.
    When, P/V ratio = 0.6, then
    BEP in unit = 60/0.6 = 100.
    So, with the increase in P/V ratio, decrease in BEP.

    Q. What is the effect on break even point if increasing the price of sales?

    Increasing the sales of price decrease the break even point.


    Let, S = 100 Tk per unit, V = 60 Tk per unit. F = 6000 Tk.
    So, BEP in unit = 6000/ (100-60) = 150 unit.
    When the sales increased by 20%,
    then BEP in unit = 6000 / (120-60) = 100unit.
    So, we can write increase the price of sales, decrease the BEP.

    Q. What is the effect on break even point if increasing the variable cost?

    If we increased the variable cost, the BEP also be increased. This statement proved by
    the following example.
    Let, S = 100 Tk per unit, V = 60 Tk per unit, F = 6000 Tk.
    So, BEP in unit = 6000 / (100-60) = 150 unit.
    Now, variable cost increased by 20%,
    then BEP in unit = 6000 / (100 – 80) = 300 unit.
    Therefore it is proved that, increase the variable cost, also increase the BEP.
    SUDIPTO KUMAR GHOSH
    RUET ETE-07 01727-138371.
    PROBLEM: The following information is available for the year ended 31st December
    2005. Here, sales 600 unit @ Tk 100.
    Fixed cost = 10000 Tk, Profit = 14000 Tk. P/V ratio = 60%. Find-
    (1) The BE sales.
    (2) What would be the profit if sales were 800 units?
    (3) What would be the BE sales if the price was increased by 20%. *************

    SOLUTION:
    (1) Here, F = 10000Tk, S = 600*100 = 60000Tk, P = 14000Tk.
    P = S-V-F or, V = S-F-P =60000 – 10000 -14000 = 36000Tk.
    BE sales = [F*S] / [S-V] = [1000*60000] / [60000-36000] = 25000 Tk. (Ans).

    (2) Here, S = 800*100 = 80000 Tk, V = [36000*800] / [600] = 48000 Tk.


    P = S-F-V = 80000-1000-48000 = 22000 Tk. (Ans).

    (3) F =10000Tk, S =100+ 20 = 120 unit, V = 60 per unit.


    BE sales = [F*S] / [S-V] = [10000*120] / [120-60] = 20000Tk. (Ans).

    PROBLEM: The following information is available for the year ended 31st December
    2005. Here, sales 2400 unit @ Tk 100.
    Fixed cost = 67200 Tk, m / s = 30%, Profit = 14000 Tk. P/V ratio = 40%. Find-
    (1) The BE sales.
    (2) Profit if sales are 3000 unit.
    (3) Sales volume to earn a profit of Tk 50000.
    (4) Marginal safety if P/V ratio is 35%.
    (5) BE sales if the price increased by 10%.

    SOLUTION: P/V ratio = C/S or, C = 0.4*100 = 40.


    V = S – C = 100 – 40 = 60 Tk per unit
    (1) BE sales = [F*S] / [S – V] = [67200*100] / [100 – 60] = 16800TK. (Ans).
    (2) Here, sales 3000 unit.
    P = S-F-V = [3000*100] – 67200 – [3000*60] = 52800 Tk. (Ans).
    (3) Here, profit 50000 Tk.
    Desired sales = [F+P] / [P/V ratio] = [67200 + 50000] / [0.4] = 293000 Tk. (Ans).
    (4) m / s = P / [P/V ratio] = 52800 / [0.35] = 150857.1429 Tk.
    (5) BE sales = F / [S-V] (per unit) = 67200 / [110 – 60] = 1344 unit. (Ans).

    SUDIPTO KUMAR GHOSH


    RUET ETE-07 01727-138371.

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