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

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

Poem 4 - To Autumn - by John Keats

About the Poet: "To Autumn" is an  ode  by the English Romantic poet John Keats written in 1819. It is the last of his six odes (which include " Ode to a Nightingale " and " Ode on a Grecian Urn "), which are some of the most studied and celebrated poems in the English language. The poem praises autumn, describing its abundance, harvest, and transition into winter, and uses intense, sensuous imagery to elevate the the fleeting beauty of the moment. "To Autumn" is the last major work that Keats completed before his death in Rome, in 1821, where the 25-year-old succumbed to tuberculosis. About the Poem: You work to make so much fruit grow that it weighs down the branches of the mossy apple trees that grow outside the farmhouses. Together, you and the sun make every fruit completely ripe. You make gourds swell and hazel shells grow fat with a sweet nut inside. Autumn is the season of mists and mellow fruitfulness...
Post a Comment
Read more

Poem 4 - Money Madness - by D. H. Lawrence (Sem IV)

The poet has admonished mankind entire mankind to change its perception and outlook about money. The poet begins expressing his annoyance by terming man’s attitude to money as ‘collective madness’. Each human being is ‘insane’ about money. He says man is so greedy and insecure about money that he shudders spending even a pound note. He trembles when he has to spend a ten-pound note. He feels money makes us quail. Man is judged by the amount of money he has. People who have more money, are respected more in society. Those who have less money, they are discriminated against. They are loathed by people, society, and the government. In order to save ourselves from being discriminated and live respectfully, we must have enough money with us. The poet’s wish about money is that bread, shelter, and fire should be free for all in all parts of the world. In the last stanza, he appeals to all men and women that we must become sane about handling money. If continue to be insa...
Post a Comment
Read more