BREAK EVEN ANALYSIS

Break Even Point (BEP) means where Total Cost is equal to Total Revenue
Marginal Cost Equation is S–V=F+P
S – V = F + P
100000 – 50000 = Fixed cost of Rs.20000 + Profit of Rs. 30000
50000 = 50000
FORMULAS:
(i) Contribution (C) = Sales – Variable Cost or Fixed cost + Profit
C = S – V (or) C=F+P
(ii) Break Even Point (BEP) in units
= Fixed cost / Selling Price per unit – Variable Cost per unit
= 10000 / 20 -10 = 1000 units
(OR)
= Fixed Cost /Contribution per unit
(iii) Break Even Point (BEP) in Sales Value
= BEP Units x Selling Price per unit
= 1000 units x 20 = Rs.20000/-
(OR)
BEP = F X S / S- V or F X S/ F + P or F X S / C
(OR) BEP = Fixed Cost / PV Ratio
( IV) P/V RATIO (Profit – Volume Ratio)
or C/S Ratio (Contribution to Sales)
= C /S x 100 or S –V / S x 100 or F + P / S x 100
(OR)
= Change in Profit / Change in Sales X 100
(V) Margin of Safety (MS) = Total Sales – BEP Sales

(Vi) Margin of Safety Ratio = Margin of Safety/Total Sales x100

Ex-1: From the following data calculate the i) Contribution ii) Profit iii) BEP iv) Margin of Safety
Fixed Cost is Rs.25,000, Sales is Rs.1,20,000, and Variable cost is Rs.45,000.

i) Contribution = S – V OR F + P
Sales – Variable Cost = 120000- 45000 = Rs.75000
ii) Profit = S –V –F OR C – F 75000 – 25000 = Rs. 50000
iii) BEP in rupees = F X S / C = 25000X120000/75000
= Rs. 40000
iv) Margin of Safety (MS) = TOTAL SALES – BEP SALES
= 120000 – 40000 = Rs. 80000

Ex-2: Consider the following data of a company for the year 2014. Sales = Rs.2,40,000/-, Fixed
cost = Rs.50,000/- , Variable cost = Rs.75,000/-. Find the following: i) P/V ratio ii) Profit iii) BEP
iv) Margin of Safety
(iv) Sales required to earn a profit of Rs.100000
(v) What will be the Profit, if sales are Rs.200000
Sales = Fixed Cost + Desired Profit/ PV Ratio
i) P/V ratio = S – V / S x 100
= 240000-75000/ 240000 x 100 = 68.75%
ii) Profit = S – V – F = Rs.115000 S–V=F+P
iii) BEP = Fixed Cost / PV Ratio OR = F X S /S-V OR F X S /C
= 50000/ 68.75 x 100 = Rs.72,727
(vi) Margin of Safety = Total sales – BEP Sales
= 240000- 72727 = Rs. 167273
(v) Sales required to earn a profit of Rs.100000
Sales = F C+ Desired Profit / PV Ratio
Sales = 50000 + 100000 / 68.75 x 100 , Sales = Rs. 2,18,181
(vi) Profit, if sales are Rs.200000
Sales = FC + Desired Profit / PV Ratio
200000 = 50000 + Desired Profit / 68.75 x 100
Desired Profit = Rs .87,500
Ex-3:
Period Sales (Rs.) Profit (Rs.)/Loss
2018 1,10,000 4,000
2019 1,50,000 12,000
Find out (a) P/V Ratio and (b) BEP
(a) P/V Ratio = Change in Profit / Change in Sales X 100
= 8,000/40,000 x 100 = 20%
(b) BEP = Fixed Cost / PV Ratio = 18000 / 20 x100 = Rs.90000
Calculating Fixed Cost :
Sales = F C+ Desired Profit / PV Ratio
110000 = FC + 4000 / 20 x 100 = Rs. 18000
OR
150000 = FC + 12000 /20 x 100 = Rs. 18000
Ex-4: Fixed overheads are Rs. 2,00,000; selling price per unit is Rs. 20, and variable cost per
unit is Rs. 10. Output is 30000 units.
From the above information of a company, calculate the (a) Break Even Point in units
and sales value (b) P/V Ratio (c) Margin of Safety, (d) Sales (Rs.) required to earn a profit of
Rs. 40,000 and (e ) How many units to be sold to earn a profit of Rs.50000.

(a) BEP in Units = Fixed Cost/ SP per unit – VC per unit

= 200000/20-10 = 20,000 units
BEP in Sales value = BEP Units x SP per unit
= 20000 units x 20 = Rs.400000
OR
BEP = FC /SPpu –VC pu x SPpu or FXS/S-V or FXS/C
= 200000/20-10X20 = Rs.400000
(b) P/V Ratio = S – V / S x 100 20 – 10 /20 x 100 = 50%,
Or
= 600000-300000/600000x 100 = 50%
BEP = Fixed cost/PV Ratio x 100, 400000 = 200000 / PV Ratio x 100 , PV Ratio = 50
%
 (c) MS = Actual Sales – BEP Sales
MS = 600000 – 400000 = Rs. 200000
Turnover (Sales) required to earn a profit of Rs. 40, 000.
Sales = F C+ Desired Profit / PV Ratio
Sales = 200000 + 40000 / 50 x 100 = Rs. 280000
(d) Sales (Rs.) required to earn a profit of Rs. 40,000.
Sales (Rs.) = F C+ Desired Profit / PV Ratio
Sales = 200000 + 40000 / 50 x 100
= 240000 x 50/100, = Rs. 480000
(e ) How many units to be sold to earn a profit of Rs.50000.
Sales (in Units) = F C + Desired Profit /SP per unit – VC per unit
Sales in units= 200000 +50000/20 -10 = 25000 units
Total Sales = 30000 units x 20 = Rs.600000
Total Variable Cost = 30000 units x 10 = Rs.300000
Ex-5: MOS ratio is 20%, P/V ratio is 30%, Sales Rs. 20, 000/- Find out BEP and Fixed cost

BEP = (sale - (MOS X Sales)) , = 20,000 – (20/100 x 20,000) , BEP = 16,000/-

MOS Ratio = MS/Total sales x 100
20/100 = MS/ 20000, MS = 20000 x 20/100 , MS = Rs.4000
MS = Total Sales – BEP Sales
4000 = 20000 – BEP, BEP = Rs.16000/-
BEP = Fixed cost/PV Ratio, 16000 = FC /30%,
16000 X 30/100 = FC
Fixed Cost = 16000 x 30/100 = Rs.4800
MS Ratio = Sales – BEP/Sales x 100 20/100 = 20000-BEP/20000 , BEP = Rs.16000
or BEP = (sale - (MOS X Sales)) , = 20,000 – (20/100 x 20,000) , BEP = 16,000/-
or MS Ratio= MS/AS x 100, 20/100 = MS/20000, MS = Rs.4000, MS = Actual Sales – BEP Sales.
4000 = 20000 – BEP Sales, BEP = Rs.16000
Fixed cost
BEP = FC / PV Ratio, 16000 = FC/ 30%, FC = 16000 x30/100 = Rs.4800.
Ex-6:
YEAR Sales Total cost Total Profit
(Sales –TC)
2019 500000 400000 100000
2020 600000 450000 150000
calculate the (a) Break Even Point (b) P/V Ratio (c) Sales required to earn a profit of Rs.
100000 and (d) Profit, when sales are Rs.400000.

(a) BEP = Fixed cost/PV Ratio

Fixed Cost
Sales = FC+ Desired profit/PV Ratio
500000 = FC + 100000/50X100, FC =150000

BEP = 150000 / 50 x 100 , BEP =300000

(b) P/V Ratio = Change in Profit/Change in Sales x100
P/V Ratio =50000 / 100000 x 100 = 50%

(c) Sales required to earn a profit of Rs. 100000

Sales = FC + Desired Profit/PV Ratio
Sales = 150000 + 100000/ 50x100 , Required Sales =Rs.500000

(d) Profit, when sales are Rs.400000

Sales = FC + Desired Profit/PV Ratio
400000 = 150000 + DP / 50X100, Desired Profit =Rs.50000

Ex-7:
Fixed cost is Rs. 90,000
Variable Cost per unit: 5+2+2 = 9
Direct Material Rs.5
Direct Labour Rs. 2
Direct Overheads 100% of Direct Labour
Selling Price per unit Rs.12
Calculate:
(a) P/V Ratio
(b) Break-even sales with the help of P/V Ratio
Sol:
(c) Sales required to earn a profit of Rs. 4,50,000

(a) P/V Ratio = S – V / S x 100, 12 – 9 / 12 X 100 = 25%

(b) BEP = Fixed cost /PV Ratio , BEP = 90000/25X100 , BEP =Rs.3,60,000
(c) Sales required to earn a profit of Rs.4,50,000
Sales = FC + DP / PV Ratio
Sales = 90000 + 450000 /25 X 100 , Sales = Rs.21,60,000

Ex-8:
Period Sales Profit or Loss
I 700000 (-) 10000
II 900000 10000
Calculate P/V Ratio and BEP

Sol:
(a) P/V Ratio = Change in Profit/Change in Sales x100
P/V Ratio = 20000 / 200000 x 100 = 10%
(b) BEP = Fixed cost/PV Ratio
Fixed Cost
Sales = FC+ Desired profit/PV Ratio
Ex-9: Prepare a Break-Even Chart to show Fixed Costs, Total Costs And Sales Revenue
Lines. Indicate the break-even point.
Variable costs per unit:
Materials Rs.10 labour Rs.15 Rs.25
Selling price per unit Rs.40
Total fixed costs Rs.60,000
Projected output levels 1000–8000 units

Sol:
Output Variable Cost Fixed Cost Total Cost Total Revenue
(in Units) (Rs.25/- per (Rs.) (VC+FC) (Rs.40/- pu)
unit)
0 0 60000 60000 0
1000 25000 60000 85000 40000
2000 50000 60000 110000 80000
3000 75000 60000 135000 120000
4000 BEP 100000 60000 160000 160000
5000 125000 60000 185000 200000
6000 150000 60000 210000 240000
7000 175000 60000 235000 280000
8000 200000 60000 260000 320000