BREAK EVEN ANALYSIS

Prof. Mahima Mishra

It analyses the relationship between Total
Revenue , Total Cost & Total Profit of firm at
various levels of output .
It’s a point where TR & TC of firm are in
equilibrium i.e. the point of zero profit.
BEP = FIXED COST
SELLING PRICE – VARIABLE
COST PER
UNIT

Where selling price & variable cost per unit

is also known as contribution margin per
unit.
 ASSUMPTIONS
1. All costs r either perfectly variable cost of
absolutly fixed cost .
2. Volume of production is equal to volume
of sales .
3. Revenue is perfectly variable with volume
of sales .
4. Productivity per worker is constant .
5. Selling price of product is stable .
6. Constant price level .
 ADVANTAGES
1. Helps in determining optimum level of output.
2. Helps in determining minimum cost of
production.
3. Helps in determining that which product to
produce & which to be purchased.
4. Expansion & contraction of firm depends on
this.
5. Gives an idea about addition & removal of
product.
6. Can be used to find most profitable selling
price.
7. Decides the point from where firm may
start distributing the dividends to share
holders.