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m DEFINITION The breakeven point is the point

where the gains equal the losses. The point
defines when an investment will generate a
positive return. The point where sales or
revenues equal expenses. The point where
total costs equal total revenues. There is no
profit made or loss incurred at the breakeven
point. It is the lower limit of profit when prices
are set and margins are determined.
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FORMULA Break even point of Sales= 1. Fixed price
x SP per unit Contribution per unit Fixed Cost x Total
Sales Total Contribution
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CALCULATION OF THE BREAK EVEN POINT VARIABLE COST-
They are directly related to the volume of sales: that is
these cost increase in proportion to the increase in sales
and vice versa. FIXED COST - Fixed costs continue
regardless of how much you can sell or not sell, and can be
made up of such expenses as rent, wages, telephone
account and insurance. These cost can be estimated by
using last years figure as a basis, because they typically do
not change. Formula= FIXED COST VARIABLE COSTS


Sales for a desired profit= (Fixed cost + Desired profit) (P/V Ratio)
Where as, P/V ratio= Contribution per unit Selling price per unit = Total
contribution Total sales

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CASH BREAK EVEN POINT It is the point where cash breaks even i.e.
the volume of sales where cash realization on account of sales will
be sufficient to meet the immediate cash liabilities. The label of
activities where the total costs under two alternatives are same While
calculating this point cash fixed costs (i.e. excluding fixed share of
depreciation and deferred expenses) and cash contribution (i.e.
after making adjustments for variable share of depreciation etc.) are
considered.


The point helps the management in determining the level of
activities below which there are chances of insolvency on
account of the firms inability to meet the cash obligation
unless alternatives are made.



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FORMULA FOR CASH BREAK EVEN POINT Cash break even point (in units) = (Cash
fixed cost) / (cash contribution per unit) Cash break even point (in sales Rs.) = (Cash
fixed cost) / (cash contribution per unit) x selling price per unit

   

BREAK EVEN ANALYSIS It refers to the ascertainment of level of operations where
total revenue equals to total costs. Analytical tool to determine probable level of
operation. Method of studying the relationship among sales, revenue, variable cost,
fixed cost to determine the level of operation at which all the costs are equal to the
sales revenue and there is no profit and no loss situation. Important techniques is
profit planning and managerial decision making.

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DEFINATIONS USED IN BREAK EVEN POINT- Fixed Cost:The sum of all costs required to
produce the first unit of a product. This amount does not vary as production
increases or decreases, until new capital expenditures are needed. Variable Unit
Cost:Costs that vary directly with the production of one additional unit. Expected
Unit Sales:Number of units of the product projected to be sold over a specific period
of time. Unit Price:The amount of money charged to the customer for each unit of a
product or service.
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DEFINATIONS CONT Total Variable Cost:The product of
expected unit sales and variable unit cost. (Expected
Unit Sales * Variable Unit Cost ) Total Cost:The sum of the
fixed cost and total variable cost for any given level of
production. (Fixed Cost + Total Variable Cost ) Total
Revenue:The product of expected unit sales and unit
price. (Expected Unit Sales * Unit Price ) Profit (or Loss):The
monetary gain (or loss) resulting from revenues after
subtracting all associated costs. (Total Revenue - Total
Costs
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DEPENDENCE Break even analysis depends on the following
variables: The fixed production costs for a product. The
variable production costs for a product. The product's unit
price. The products expected unit sales [sometimes called
projected sales.] On the surface, break-even analysis is a
tool to calculate at which sales volume the variable and
fixed costs of producing your product will be recovered.
Another way to look at it is that the break-even point is the
point at which your product stops costing you money to
produce and sell, and starts to generate a profit for your
company. It can also use break even analysis to solve
managerial problems.