If you want to improve the profit performance of your business, break even point analysis suggests that there are three main ways: To increase sales volumes To increase contribution rates To reduce fixed costs Actions taken by turnaround consultants and business recovery experts suggest that in many cases, the fastest acting of these initiatives is to reduce fixed costs.
The following illustration will help to understand the whole principal: Types of Break-Even Chart: The BECs we have discussed so far are the common type.
There are certain types of Break-Even Charts which are yet to be discussed and which are used for various purposes. Some of them are discussed here under: Under this type of BEC, the total variable costs, i. In this respect it may be mentioned that if this chart contains only the details of appropriation of profit it may be called profit-appropriations BEC.
The following illustration with help to understand the principle: From the following particulars, draw up a detailed BEC: Control Break-Even Chart proves itself a very useful method which directly helps the management in taking decisions. It is to be remembered that the detailed information about deviations between budgeted figures and actual figures is not possible graphically.
Before preparing a Cash Break-Even Chart we are to divide the amount of fixed cost into two following groups: Similarly variable costs which need immediate payment, are plotted as usual. But care should be taken if any credit transaction is included in the variable cost.
This Chart is very useful to those firms which suffer from short-term liquidity and solvency position as well. It is primarily used in cash flow analysis.
From the following information prepare a Cash-Break-Even Chart: This is particularly useful where the demand for a product is elastic. Because in case of perfect competition selling price of a product is to be reduced in order to earn more profit by increasing the volume of sales which ultimately gives a highest contribution.
Now, the problem arises before us is that at what stage the amount of profit will be maximised since the volume of sales are fluctuating. This can be solved with the help of a BEC which is shown below.
In this regard, it may be said that if amount of sales and costs at different stages are plotted on a graph paper, it becomes possible for us to know at which point the profit will be maximized. Needless to mention that that point will be the optimum level and that selling price of the products will be the optimum selling price of the products of the firm.
All these information can be had with the help of a BEC which is presented below: The fixed costs amount to Rs. Before preparing the graph the following table is prepared: Now taking the above data, we can plot the same on s graph which is depicted as under: As such, this will be the optimum level of output at the prevailing selling price which will yield the maximum profit.
Method of Preparation of Break-Even Chart: Then plot the variable cost line over fixed cost level at various level of activity and join the variable cost line with fixed cost line at zero level of activity which will indicate total cost line — variable cost being over fixed cost line.Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit) When determining a break-even point based on sales dollars: Divide the fixed costs by the contribution margin.
The contribution margin is determined by subtracting the variable costs . The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.
F. An alternative will have fixed costs of $10, per month, variable costs of $50 per unit, and revenue of $70 per unit. The break-even point volume is. If you want to improve the profit performance of your business, break even point analysis suggests that there are three main ways: To increase sales volumes To increase contribution rates To reduce fixed costs Actions taken by turnaround consultants and business recovery experts suggest that in many cases, the fastest.
Overview. The break-even point (BEP) or break-even level represents the sales amount—in either unit (quantity) or revenue (sales) terms—that is required to cover total costs, consisting of both fixed and variable costs to the company. Total profit at the break-even point is zero.
It is only possible for a firm to pass the break-even point if the dollar value of sales is higher than the. The method of calculating break-even point of a single product company has been discussed in the break-even point analysis article. In this article, I would explain the procedure of calculating break-even point of a multi product company.
A multi-product company means a company that sells two or more products. The procedure of computing break-even . If a firm has a price of $, a variable cost per unit of $, and a break-even point of 40, units, fixed costs are equal to _____. A. $27, B. $90,