Break Even Point Analysis

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Break even point analysis is very important topic of cost accounting. You add more in it by writing your worthy comments below this content. Break even point analyzes which quantity or amount of sale of products will be most profitable to the business. First of all, we find  break even point  on graph of total sale and total cost on the different level of unit of sale and then study the cause and effect deeply if we increase sale or decrease the sale from this point and try to find important facts and information which can be used in business. It can also solve following problems

Q: - 1. Why are company increasing the price of product or decreasing its cost?

Ans. After find the break even point on the graph paper and calculating the quantity of sale under break even point. It is very easy for company to know the quantity of sale where total cost of company is equal to total revenue of company. But some time, company has no power to get that level of sale. At that time, company can take the decision to increase the price or decrease its fixed and variable cost for protecting business from loss. That is the reason, we are doing analysis of break even point.

Q: - 2. How will Company get new ideas relating to maximize the profit?

Ans. Break even provides clear picture of cost, sales, profit and their relationship. Sometime a simple person does not understand the formula of units sold at break even point but this formula shows the clear relationship among total fixed cost, sale per unit and variable cost per unit.

we show here the formula of sale unit at BEP = TFC / sale price per unit - variable cost per unit

Now, accounts manager thinks like me :

a) how can my sale unit will more than break even point sale unit without any loss because there is no benefit to increase sale unit at higher cost?

b) This formula also provides me to reach its originality.

sales unit at BEP = Total fixed cost/ sale price per unit - variable cost per unit


X = TFC / P - V

X ( P- V ) = TFC

P X X - V x X = TFC

P X X = TFC + V X X

Total Sale = TFC + TVC

Total Sale = Total Cost

Q:- 3. How can manager achieve target income sales?

Ans. With break even point analysis, manager can achieve target income sales because, if we subtract variable cost out of sale value, we can find contribution and break even point will be

BEP = Total fixed cost / Contribution per unit

and target income in unit will be = total fixed cost + target income / contribution per unit

Q:- How to find Margin of Safety ?

Ans. One of major benefit of analysis of break even point, with this, we can calculate exact amount of profit of business whether they are over or below the sale than break even point. Without  finding break even point, we can not find margin of safety.

margin of safety = (current output - break even output)

margin of safety% = (current output - break even output)/current output x 100

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Accounting Education: Break Even Point Analysis
Break Even Point Analysis
Accounting Education
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