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

Interview Notes / Questions - US Taxation 1065 & 1120

  1.     163 J: Business Interest Expense limitation: Example: Capital Structure: Debt - 98% Equity - 2% 8890 Fedra Form Why IRS limiting a corporation? Corporation highly leverage on debt so they pay high interest expense to claim deductions.   2.     Sec 78 Gross up: If parent paid taxes of it's foreign subsidiaries, then the parent Can Claim that tax in us and can pay less tax Ex. 100$ (CFC) earn & paid 10$ tax & in Us parent must 21% 21$ pay can deduct 10$, must pay only 11$. line 30 state 50% deduction line 28 State 100% deduction   $210 $ 10 = $ 11 3.     Sub part F: If Sub part f is an income which is relatively movable from one taxing jurisdiction to another and that is Subject to low rates of foreign tax - This applies to CFC only.   4.     DRD: Dividend Received Deduction It is a tax deduction available to corporations in the US that receive dividen...
Post a Comment
Read more

Unit I: Internet e-commerce Business Models

Electronic commerce: Electronic commerce better known as e-commerce consists of the buying or selling of  products  via electronic means such as the  internet  or other electronic services. This type of  trade  has been growing rapidly because of the expansion of the Internet. The need for electronic commerce emerged from the need to use computers more efficiently in banks and corporations. With the increasing competition, there was a need amongst organizations to increase customer satisfaction and information exchange. Electronic commerce started with the introduction of electronic funds transfer (EFT) by banks. Over time many variants of EFTs within banks were introduced like  debit cards ,  credit card s and direct deposits. Business model: A business model describes the  rationale  of how an  organization  creates, delivers, and captures  value , in economic, social, cultural or ...
Post a Comment
Read more

Unit IV - E-Governance

Due to the rapid rise of the internet and digitization, Governments all over the world are initiating steps to involve IT in all governmental processes. This is the concept of  e-government . This is to ensure that the Govt. administration becomes a swifter and more transparent process. It also helps saves huge costs. Advantages of E-Governance Speed  Technology  makes communication swifter. Internet, smartphones have enables instant transmission of high volumes of data all over the world. Saving Costs  A lot the Government expenditure goes towards the cost of buying stationery for official purposes. Letters and written records consume a lot of stationery. However, replacing them with  smartphones  and the internet can saves crores of money in expenses every year. Transparency  The use of e-governance helps make all functions of the business transparent. All Governmental information can be uploaded onto the internet. The citizens ...
Post a Comment
Read more