48776568-break-even-ppt
TRANSCRIPT
-
8/7/2019 48776568-Break-Even-PPT
1/14
Presented by:
GROUP NO. 10Ansuman Rath
Meenal JindalFakeha rahman
Rajeev D.R
Md. Shamshad Ansari
-
8/7/2019 48776568-Break-Even-PPT
2/14
Case Study: Krishna Bakery.Assume we have a Krishna Bakery in Anekal, The Financial account book
of Krishna Bakery reveals that its fixed costs are Rs.50,000/-. The costassociated with producing 1 unit of Black forest Pastry is Rs 3/-. The
bakery sales person sells pastries at Rs 13.00/- per unitNow, as the future managers of Anekal, we have to determine
y What are the minimum number of Pastries that has to be produced?and
y What is the minimum sales need to be done, so that the Krishna
bakerys investors get at least their invested money back ?
-
8/7/2019 48776568-Break-Even-PPT
3/14
Now lets discuss the factors
involved:
y Fixed cost:It is the cost that does not vary depending on production or saleslevels, such as rent, property Tax, insurance or interest expenses.
y Variable Cost:It is the cost that changes in proportion to a change in acompany's activity or business.
E.g.- Labour cost, Raw material cost.
y Contribution Margin per Unit =Contribution per margin Sales Priceper Unit Variable Costs per Unit.
-
8/7/2019 48776568-Break-Even-PPT
4/14
y Breakeven point
It is the point at which the company neither makes a profitnor suffers a loss.
y Breakeven Units :
Its the number of units that need to be sold in order to incurback the investment that has been done.
y
Break
Even Sa
les :It is the sales that has to be done to incur back the investmentdone.
-
8/7/2019 48776568-Break-Even-PPT
5/14
Methods of calculationMathematically,
Q = FC / (UP - VC)
Where,
y Q= Break-even Point, i.e., Units of production (Q),
y FC= Fixed Costs,
y VC= VariableCosts per Unit
y
UP = Unit Price of saley Therefore,
y Break-Even PointQ= Fixed Cost / (Unit Price - Variable UnitCost)
-
8/7/2019 48776568-Break-Even-PPT
6/14
yGraphically,
-
8/7/2019 48776568-Break-Even-PPT
7/14
Analysis of the case:
Here,y Fixed cost=Rs 50,000/-
y Variable cost =Rs 3/- per unit
y Selling Price=Rs13/- per unit
y Contribution margin per unit=Rs13-3=Rs 10/-
y Break even units=50000/10=5000 units
-
8/7/2019 48776568-Break-Even-PPT
8/14
Where it is applied.??
This concept is applied in all most all industries. For instance,
Manufacturing Industry
Service Industry
-
8/7/2019 48776568-Break-Even-PPT
9/14
What if???
What Happens to theBreakeven Point if Sales Change?
y For example, due to recession, your sales are starting to drop. As salesare dropping, you are in a sticky situation as we are not able to breakthe even point.
y In simple words, you are sales are doing bad and due to this, you are
compromising on getting back the total cost invested on the producthence resulting in losses.
-
8/7/2019 48776568-Break-Even-PPT
10/14
Solutiony We can either raise the price of our product or we can find ways to cut
our costs, our fixed and/or our variable costs.
y Decreasing the Fixed cost will move the BEP down and hencedecreasing the Break even Units sales to achieve. Similarly for theVariable cost , E.g. cutting down the salaries of the employee.
y Thus we can see that, we can set an easier BEP to achieve by the above
methods, keeping aside the price increase strategy.
-
8/7/2019 48776568-Break-Even-PPT
11/14
ultiple Break Even Analysisy In the examples ,the variable cost parameters and the price were
assumed to be constant because of which the graphs were linear.
y If the assumptions of the constant price is relaxed then we canintroduce a non linear cost and revenue function and by that we getmultiple break even points.
y However, in real life scenarios, most businesses face the multiple break
even points due to external factors like price increase/decrease in rawmaterials used, govt. impelling on higher taxes. Etc.
-
8/7/2019 48776568-Break-Even-PPT
12/14
Most of the firms manufacture out Multiple products. Even here , BEpoint can be calculated.However, the assumption has to be made thatthe sales mix remains constant. This is defined as the relative
proportion of each products sale to total sales. It could be expressed asa ratio such as 2:4:6, or as a percentage as 20%, 40%, 60%.
y The calculation of breakeven point in a multi-product firm follows thesame pattern as in a single product firm. While the numerator will be
the same fixed costs, the denominator now will be weighted averagecontribution margin. The modified formula is as follows:
ultiple Product Situations
-
8/7/2019 48776568-Break-Even-PPT
13/14
athematically,y Breakeven point (in units)=
Fixed costs /Weightedaverage contribution margin per unit
y One should always remember that weights are assigned inproportion to the relative sales of all products.Here, it will
be the contribution margin of each product multiplied byits quantity
-
8/7/2019 48776568-Break-Even-PPT
14/14
Thanks