Break Even Chart: It shows the BEP and indicates the estimated profit or loss at various output levels. The break-even point as indicated in the following graph is the point at which total cost and sales lines intersect. Example Determine graphically (a) the Break-even point and (b) the Profit if the output is 25,000 units. … Read more
Break-Even Analysis: It refers to a technique of determining the level of operations where total revenues equal total expenses i.e. the point of no profit no less. Computation of Break-Even Point $$Sales\;revenue\;at\;B.E.\;P.\;=\;F\;+\;V$$ a) Break-even Point in Units: $$B.E.P.(UNITS)\;=\frac{\;(Fixed\;\cos t)}{(Selling\;Price\;per\;unit\;-\;Variable\;\cos t\;per\;unit)}$$ $$or,\;B.E.P.(UNITS)\;=\;\frac F{(Contribution\;per\;unit)}$$ BEP in terms of Money $$S\;=\;F\;+\;V$$ $$or,\;S\;-\;V=F$$ $$or,\;\frac{(S-V)}V\;\;=\;\;\frac F{(S-V)}$$ $$or,\;1\;=\;\frac F{(S-V)}$$ $$or,\;S\;=\;\frac{(F\times S)}{(S-V)}$$ … Read more
Cost Volume Profit Analysis: A method for analyzing the link between COST, Volume, and Profit is called Cost Volume Profit analysis. The profit of an undertaking depends upon a large number of factors. But the most important of these factors is the COST of the manufacturer, the volume of sales, and the selling prices of … Read more
Significance: The ratio reveals in percentage how much of sales is available for recouping fixed costs and higher the sustaining capacity of the firm to stay in the competitive market. It assists in determining the volume of production required for earning desired profit. This is why management aims to enhance the ratio. The following method … Read more
Contribution: Contribution is the difference between sales and variable costs or marginal costs. It also may be defined as the difference between the selling price per unit and the over-variable cost per unit. If the selling price of a product is Rs.100/- per unit and variable cost per unit is Rs.80/-, contribution per unit is … Read more
Marginal Cost Equation: Sales – Variable Cost = Contribution alternatively, Sales = Contribution + Variable Cost So, Sales = Variable cost + Fixed cost ± Profit So, Sales – Variable Cost = Fixed Cost ± Profit. also, S – V=F ± P.
