Skip to main content

Unit II - Break-Even Analysis


Concept of Break-Even Analysis:

Break-Even Analysis is a concept used very widely in production management and cost. It is an analytical tool which helps the firm to identify that level of sale where it will cover its cost of production. Any sale over and above the break- Even Point will accrue profits to the firm, while any sales less than it would put the firm into losses. The Break-Even Point shows the price at which the firm makes neither profit nor loss. Break-Even point is a very significant concept in Economics and business, especially in Cost Accounting. Break-Even point is a point where the cost of production and the revenue from sales are exactly equal to each other; which means that the firm has neither made profits nor has incurred any losses. The Break-Even Analysis is also known as the Cost- Volume- Profit Analysis and is used to study the relationship between total cost, total revenue, profits and losses. It also helps to determine that level of output which is required to cover the operating costs of a business.

Limitations of Break-Even Analysis:

For the break- even point to be counted, all costs need to be clearly categorized in fixed and variable costs, which may not be possible every time.
For the multiple- product or joint- product operations, it is difficult to apply the break-even analysis. on needs to ascertain the costs to each product, hence the analysis is applicable only for a single product.
The computation of the break-even point is based on the historical information. If this information is not relevant, the analysis cannot be applied usefully.

Significance of Break-Even Analysis:

The break-even analysis helps us to determine the levels of sales necessary to meet all the operating costs. With the estimates of revenue and costs, we can forecast the profits. One can also appraise the effects of change in price, fixed costs and variable cost on sales volume, total cost and total revenue and in turn, on the break-even point. One can compare the profit earning capacities of different firms. It can also bring out the significance of capacity utilization for achieving economy.

Video Lecture Links:


https://youtu.be/EMVs0IL0EfU
 

  
Contents   1   2   3   4   5

Labels:

Comments

Post a Comment

Popular posts from this blog

Poem 2 - Solitude - by Alexander Pope (Sem IV)

“Ode on Solitude” is a poem written by Alexander Pope. In this poem, the Pope expresses his desire to lead a quiet and secluded life, with minimal assets. The poet prefers to have just a few acres of land. He would not like to go anywhere out of his native region. He would like to breathe the air of his ancestral place. He wants to have a comfortable and self-sufficient life. He would get milk from the herds, food from the fields, wool for clothing from the sheep. He prefers to be under the shadow of trees during summer, and use the wood to make fire during the winter. All that required is good health, peace of mind and quietness.  He would spend his days in study and leisure, and live a life of innocence and thought. The final note is that the poet would like to live an oblivious life, with no necessity to be mourned or missed once he passes away.
Post a Comment
Read more

Interview Question: Share Market

  Interview Questions (Continued...) Share Market What is ADR? An American depository receipt is a certificate issued by a U.S. bank that represents shares in foreign stock. These certificates trade on American stock exchanges. ADRs and their dividends are priced in U.S. dollars. ADRs represent an easy, liquid way for U.S. investors to own foreign stocks. These investments may open investors up to double taxation and there are a limited number of options available. What is GDR? A global depositary receipt (GDR) is a certificate issued by a bank that represents shares in a foreign stock on two or more global markets. GDRs typically trade on American stock exchanges as well as Eurozone or Asian exchanges. GDRs and their dividends are priced in the local currency of the exchanges where the shares are traded. GDRs represent an easy, liquid way for U.S. and international investors to own foreign stocks. ...
Post a Comment
Read more

Phrose 1 - The Town Week - by E.V. Lucas (Sem IV)

In his celebrated essay, “The Town Week” E. V. Lucas very artistically painted various moods and attitudes of the urban people in the seven days of a week. On Monday, people wake up from their dreamy and lazy languor. The day seems flat as if without any colour and flavour. The fun and relic of the Saturday and Sunday have gone. They look morose and pale. A dull and monotonous life is going to eat them up once again. Reluctantly, people come back to their workplaces from their village home. The town becomes populated and busy. The local trains are over-crowded. They do not put their interest in their work. So, most of the time, they enjoy gossiping with their colleagues about their week-end spending. The laziness of Monday almost dries up on Tuesday. People become more active and exciting like “glittering star”. They take their job more seriously. The day is pretty good for the businessmen. The week looks more stirring and energetic on Wednesday. It is th...
Post a Comment
Read more