logging in or signing up bea maddyOO7 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Dynamic Copy Does not support media & animations Automatically changes to Flash or non-Flash embed WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 9 Category: Entertainment License: All Rights Reserved Like it (0) Dislike it (0) Added: July 01, 2012 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Assumption for Break Even Analysis: Assumption for Break Even Analysis The relation between total cost and level of out put is linear. The fixed cost is remain constant The price of raw material labor etc. are assumed to be constant what ever is produced is sold out immediatelyBreak Even Analysis: Break Even Analysis An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates margin of safety, the amount that revenues exceed the break-even point.Break Even Analysis: kiet 3 Break Even Analysis Collect financial and cost information to determine fixed and variable costs Fixed costs Variable cost/unit (labor, materials, overhead) Estimate Selling Price per unit from marketing analysis and market testing Determine BE volume and compare to estimated sales If estimated sales volume is not above the BE volume, make adjustmentsTypes of Cost : kiet 4 Types of Cost Fixed costs - do not vary (e.g., lease costs, rent, insurance) Variable costs - vary with volume of production (e.g., labor, materials, supplies, rent, etc.) Overhead can also be applied here as a variable expense or burden rate . Selling cost : this is the price at which the one unit of product is to be sell out.Fixed Cost Fixed cost is the the same, regardless of volume: kiet 5 Fixed Cost Fixed cost is the the same, regardless of volumeVariable Cost + Fixed Cost Total Cost goes up with volume because Variable Cost increases: kiet 6 Variable Cost + Fixed Cost Total Cost goes up with volume because Variable Cost increasesTotal Revenue is based on volume and selling price/unit. Where the Revenue and Total Cost lines intersect is the Break Even (BE) Point. That volume is the BE Volume: kiet 7 Total Revenue is based on volume and selling price/unit. Where the Revenue and Total Cost lines intersect is the Break Even (BE) Point. That volume is the BE VolumeProfit Above the BE point, the difference between the Revenue and Total Cost lines represents profit: kiet 8 Profit Above the BE point, the difference between the Revenue and Total Cost lines represents profitLoss If volume is below the BE point, the difference between the lines represents a loss: kiet 9 Loss If volume is below the BE point, the difference between the lines represents a lossBreakeven Volume: kiet 10 Breakeven Volume Profit Equation - Profit = Revenue - Expenses Total Variable Cost (VC) is a function of volume (x) of units sold. Total VC = (Variable Cost/unit) * x Total Cost = Fixed Cost + Total VC Revenue is also a function of units sold: Revenue = (Price/unit) * x Breakeven Volume is the number of units you need to sell so that: Revenue = Total CostBreakeven Volume (cont’d): kiet 11 Breakeven Volume (cont’d) Find x such that: (Price/unit) * x = Fixed + (VC/unit) * x Therefore: x BE = Fixed Cost / (Price/unit) –(VC/unit) If actual volume is < x BE , you have a loss If actual volume is > x BE , you have a profitImportant terms: Important terms Angle of incidence: this is the angle at which sales revenue line cuts the total cost line. Large angle shows profit at high rate Margin of safety: it is excess of budgeted or actual sales over the break even sales volume. Margin of safety= Budgeted sales-sales at B.E.P. It is generally expressed as ratio of actual sales to sales at B.E.P. % of difference between actual sales and BEP sales to budgeted sales. profit=margin of safety- variable cost. Profit –volume (P/V) Ratio: It is the ratio of contribution (total sales-variable cost)to the sales . It indicate relation between contribution and turnover. 12 You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.