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Break Even Point No Profit No Loss Sales - Variable Contribution - Fixed Cost Profit

The document discusses concepts related to break even analysis including: 1) Break even point is the level of sales where there is no profit or loss, calculated as fixed costs divided by the contribution to sales ratio. 2) Contribution can be expressed as sales minus variable costs or as fixed costs plus profit. 3) Above the break even point, a business will generate profits, so managers aim to reach it as soon as possible. The margin of safety is sales above break even that generate profits.

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Shilpan Shah
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308 views10 pages

Break Even Point No Profit No Loss Sales - Variable Contribution - Fixed Cost Profit

The document discusses concepts related to break even analysis including: 1) Break even point is the level of sales where there is no profit or loss, calculated as fixed costs divided by the contribution to sales ratio. 2) Contribution can be expressed as sales minus variable costs or as fixed costs plus profit. 3) Above the break even point, a business will generate profits, so managers aim to reach it as soon as possible. The margin of safety is sales above break even that generate profits.

Uploaded by

Shilpan Shah
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Break Even Point = No Profit No Loss Sales - Variable Contribution - Fixed cost Profit

Contribution can be expressed in two ways basically, (A) Contribution =sales-variable cost (B) contribution= fixed cost + profit OR contribution= sales p/v ratio


The situation which generates higher contribution is treated as profitability situation The contribution plays an important role in situation where there are more than one product and the profit on individual product can not be ascertained due to the problem of apportionment of fixed costs to different the products.

Fixed cost is the cost that tends to remain constant irrespective of the level of activity or volume of operation. The main feature of fixed cost is that this cost in term of amount may remain constant at all level of activity Fixed Cost = Contribution Profit Or Fixed Cost = Sales P/v Ratio- Fixed cost

This ratio indicates the contribution earned with respect to one rupee of sales as such as, P/V Ratio = (contribution ratio) Contribution Sales 100

fixed cost remain the same if there is any change in profit ,that only due to change in contribution ,hence p/v ratio may also expressed as , P/V Ratio = Change in Profit Change in Sales 100

This situation is no profit no loss As such, it will intension of every business to reach the break even point as early as possible. It expressed in two way, BEP = (in units) BEP = (in Rupees) BEP = ( in Rupees) Fixed cost Selling Price Variable Cost Fixed Cost P/v ratio OR Break Even Units Selling Price

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There are the sales beyond the break even point A business will like to have a high margin of safety because this is amount of sales which generates the profit The soundness of the business id indicated by the margin of safety . Mos = (in Rs) Actual Sales Break Even Sales

Mos = Actual Sales Break Even Sales (in %) Actual Sales

100

Sales At Expected Profit= Fixed Cost + Expected Profit (in Unit) Selling price - Variable Cost

Sales at Expected Profit = P/V Ratio (in Rs.)

Fixed Cost + Expected Profit

Variable cost varies in direct proportion with the level of activity ,however ,per unit variable cost remains constant at the all level of activity Per unit selling price remains constant at all level of activities Whatever is produced by the organization is sold off . In other words ,there are no variation due to stock

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The product cost are classified as fixed cost and variable cost and also semi-variable cost classified components of fixed cost and variable cost Only variable cost are considered while computing the product cost Prices of the product are based on variable costs only Profitability of the product is decided in terms of marginal contribution Fixed cost are written off during the period of incurrence hence do not find a place in the product cost determination.

      

Evaluation Of Performance Profit Planning Fixation Of Selling Price Make Or By Decision Optimizing Product Mix Cost Control Preparation Of Flexible Budget

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