![]() ![]() The cash breakeven point may be defined as that point of sales volume at which total revenue is equal to total cash cost.Īt this point, cash contribution (which is calculated after making adjustment for variable portion of depreciation, etc.) equals the cash fixed cost, i.e., fixed cost excluding depreciation and deferred expenses. Thus, the concept of cash break-even point has emerged. In the present competitive world of business, it may be difficult for new industrial units to achieve the break-even point in the initial years. If information as to total contribution at full capacity is available, the break-even point as a percentage of estimated capacity can be found as under:ī.E.P (as % age of capacity) = Fixed Cost/Total Contributionįrom the following information, calculate the break-even point in units and in sales value: For example, if a firm has an estimated capacity of 1,00,000 units of products and its break-even point is reached at 50,000 units, then the break-even point is at 50% of capacity (1,00,000/50,000). (c) Break-even Point as a percentage of estimated capacity:īreak-even point can also be computed as a percentage of the estimated sales or capacity by dividing the break-even sales by the capacity sales. (b) Break-even Point in terms of budget-total or money value: (c) As a percentage of estimated capacity.Īs the break-even point is the point of no profit no loss, it is that level of output at which the total contribution equals the total fixed costs, It can be calculated with the help of following formula: (b) Budget total or in terms of money value. The break-even point can be computed in terms of: The break-even point can be computed by the following methods:Īlgebraic Formula Method for Computing the Break-Even Point : Sales revenue at break-even point = Fixed Costs + Variable Costs. ![]() If production/sales is increased beyond this level, there shall be profit to the organisation and if it is decrease from this level, there shall be loss to the organisation.īreak-even point can be stated in the form of an equation: The break-even point refers to that level of output which evenly breaks the costs and revenues and hence the name.Īt this point, contribution, i.e., sales minus marginal cost, equals the fixed costs and hence this point is often called as ‘Critical Point’ or ‘Equilibrium Point’ or ‘Balancing Point’ or no profit, no loss. A business is said to break-even when its total sales are equal to its total costs. The break-even point may be defined as that point of sales volume at which total revenue is equal to total cost. (viii) There is synchronisation between production and sales. (vii) There is only one product or in case of multi-products, the sales mix remains unchanged. (vi) There will be no change in the general price-level. (v) Volume of production is the only factor that influences cost. (iv) Selling price per unit remains unchanged or constant at all levels of output. (iii) Fixed cost remains constant at all volumes of output. (ii) Variable cost remains constant per unit of output irrespective of the level of output and thus fluctuates directly in proportion to changes in the volume of output. (i) All elements of cost, i.e., production, administration and selling and distribution can be segregated into fixed and variable components. The break-even analysis is based upon the following assumptions: In its narrow sense, it refers to a technique of determining that level of operations where total revenues equal total expenses, i.e., the point of no profit, no loss. ![]() In its broad sense, break-even analysis refers to the study of relationship between costs, volume and” profit at different levels of sales or production. ![]() The term “break-even analysis” is used in two senses-narrow sense and broad sense. This is so, because break-even analysis is the most widely known form of cost-volume-profit analysis. The study of cost-volume profit analysis is often referred to as ‘break-even analysis’ and the two terms are used interchangeably by many. ![]()
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