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Break Even Analysis
- 1. The Break Even Point And Its Economic Significance
- 2. As an entrepreneur, what you want to know? How many goods do we have to sell before we start making money? If we sell 100,000 units, what will our profit be? What will be more profitable make or buy?
- 3. The answer to all of these is … Breakeven Analysis: A decision-making aid that enables a manager to determine whether a particular volume of sales will result in losses or profits.
- 4. Break even analysis It is a planning and control technique. 1) Planning: Make informed decisions 2) Control: Constant checks
- 5. Break even point A break even point indicates at what level cost & revenue are in equilibrium It is a point of indifference, where losses cease to occur while profit have not yet begun
- 7. Variable costs
- 8. Contribution Margin
- 9. Revenue
- 11. Volume of production & volume of sales are equal
- 12. Sales price of product is constant
- 13. Constant rate of increase in variable cost
- 14. No improvement in technology & labor efficiency
- 16. The target capacity of a firm to get the benefit of minimum per unit production cost
- 17. Minimum cost for a given level of output
- 18. Selling price for a product
- 20. Impact of Purchasing new capital equipment
- 21. Should one make, buy or lease capital equipment
- 22. Revenue & cost implications of changing the process of production
- 24. Graphical method
- 27. Algebraic approach contd… Break even point of sales 1. Fixed Cost x SP per unit Contribution per unit Fixed cost x Total sales Total contribution
- 28. Break Even Analysis of Surf Total Sales Total Variable Cost Total Fixed Cost
- 29. Break even analysis Break even(2005) = Fixed cost x Total sales Total contribution = RS 5,991,714 Break Even(2004) = Rs 7,521,253 Break Even (2003) = Rs 6,808,887
- 30. Break even analysis TC Revenue VC FC Sales 2004 2005 2003
- 31. Break even analysis TC Costs VC Profit Loss FC Sales 2004
- 33. Rajiv Gandhi Setu A classic example of break even Failure What went wrong ? Increase in the initial project cost from Rs 1300 cr. to Rs 1650 cr. Project 65,000 vehicles to use the bridge, but only 40,000 actually taking it High toll tax
- 36. Chose the method of Franchisee model like McDonalds with networking and stringent quality control.
- 39. Current situation Average demand: 5000 Vada pavs per day Average revenue: 60,000 per day Projected break even period 4 months
- 41. Total stores: 45 stores in 7 years with a profit revenue of Rs 12 cr in 2007-8 and an early breakeven falling in the same year with no reported losses thereafter.
- 42. Turnover of Rs 40 lakh in its first full year of operation. (first ever store)
- 43. The company has a turnover of Rs 8 cr (under $2 million) as on date!
Hinweis der Redaktion
- Study of interrelationships among a firm’s sales, costs, and operating profit at various levels of outputIt reveals the relationship between volume & cost of production @ one hand & the revenue & profit obtained from the sales on other hand BEA is a technique used for profit planning & control Incase of BEA BEP is of particular importance break-even analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service. Managers can use this information in making a wide range of business decisions, including setting prices, preparing competitive bids, and applying for loans.Break-even analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service
- It indicates the minimum level of production/ Sales which the company has to undertake in order to be economically viable
- It helps the management in visualizing profit & loss implications @ diff level of sales …Total revenue is shown as linear as it assumes that price is constant
- The cost Curve in Break even chart can be prepared in 2 ways 1 Analytical Approach –uses information of one single income statement , here management classifies the cost info of 1 single income statement into those costs that are fixed & those that r variable 2 Statistical Approach – Management Gather information form series of income statement of the succeeding years , The Different level of output & the corresponding costs plotted on a scatter diagram , & then the best fit line is drown through these points on the scatter diagram to ge a total cost line