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Break Even Analysis Examples

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BREK-EVEN ANALYSIS
Break-even analysis is a powerful management tool. A break-even analysis is a process that use to the determine number of unit that have to sell to recover the capital. In accounting it specifically said that the point where the total cost and total revenue are equal. There will be no gain or loss. It is called as the break-even point. It is identifying as the point that payback the initial. Break-even analysis also use in planning, decision making and controlling expenses. It is also can be used in determining wheatear to buy or lease, expanding to new area, building new plan and many other business application. It also can show impact on business of changing price strategy.
Break-even analysis is help to identify to calculate …show more content…

In break-even all the cost are fixed or variable. It is just from supply sides which for cost. It assumes that fixed costs are constant. Although this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise. It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales. (i.e., linearity). It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period). In multi-product companies, it assumes that the relative proportions of each product sold and produced are constant (i.e., the sales mix is …show more content…

If complete data on cost structure of a product is not available than there is no benefit of doing this analysis as it would yield incorrect result.

APPLICATION OF BREAK_EVEN ANALYSIS

Break-even point (unit) = (Total fixed cost)/(price-variable cost per unit) = 1,220,000/(650-345) =4000units

Break-even point (value) = (Total fixed cost)/(Price-vaariable cost per unit )×price per unit = (1,220,000 )/(650-345)×650 =$2600000
Margin of safety (value) = Budgeted Sales – Break-even Sales = 3,261,868 – 2600000 = 661868

Margin of safety (percentage) =(Margin of safety(value))/(Budgeted Sales) ×100 = 661868/3261868 ×100 =20.29%

Break-even chart

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