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 3 - The Duck and the Kangaroo - by Edward Lear

About the Poet: "The Duck and the Kangaroo" is a nonsense poem by Edward Lear. It was first published in Lear's 1870 collection,  Nonsense Songs . The poem depicts a dialogue between a pond-bound duck and the kangaroo who represents the duck's greatest chance at freedom. The duck persuades the kangaroo to take the duck around the world on its back. While "The Duck and the Kangaroo" do not share the structure or the precise meter of Lear's  limericks , his greatest claim to fame, the poem includes Lear's signature wordplay and his use of  anthropomorphism , in which he gives animal characters very human traits and interactions) . About the Poem:                The Duck  explains that its own life in the pond is boring and that it wants to explore the world. It could fulfil its dream if it could hop like the  Kangaroo .  The Duck  asks the  Kangaroo  for a ride on th...
Post a Comment
Read more

UNIT II - INCORPORATION OF COMPANY

2.1 Incorporation of Company The incorporation of a company refers to the legal process that is used to form a corporate entity or a company. An incorporated company is a separate legal entity on its own, recognized by the law. These corporations can be identified with terms like ‘Inc’ or ‘Limited’ in their names. It becomes a corporate legal entity completely separate from its owners. Steps in Incorporation of a Company A group of seven or more people can come together so as to form a  public company  whereas, only two are needed to form a private company. The following steps are involved in the incorporation of a company. 1. Ascertaining Availability of Name The first step in the incorporation of any company is to choose an appropriate name. A company is identified through the name it registers. The name of the company is stated in the memorandum of association of the company. The company’s name must end with ‘Limited’ if it’s a  public compa...
Post a Comment
Read more

Poem 1 - On His Blindness - by John Milton (Sem IV)

John Milton ’s poem “On His Blindness” is an autobiographical sonnet in which Milton meditates on his own loss of sight. For most of his life, Milton had been able to see perfectly, but his late-night reading and writing on behalf of the government of the short-lived English Republic, in which he held a very prominent position, helped ruin his eyesight. This sonnet—written in the “Petrarchan” rhyme scheme associated with the fourteenth-century Italian poet Francesco Petrarca—is divided into an eight-line “octave” and a six-line “sestet.” The octave rhymes  abba abba . The sestet rhymes  cde cde . The sonnet is, therefore, a typical Petrarchan sonnet in form, but in subject matter, the poem departs from the topics usually associated with Petrarchan poems. Petrarch (the English version of Petrarca’s name) was most famous for writing about love; Milton departs from that conventional topic to deal with a very practical, very physical problem, but a problem with many broa...
Post a Comment
Read more