BREAK EVEN POINT
The Break even
point is that point at which the organisation makes no profit and no loss. At
this point revenue is just sufficient to cover all costs without resulting in
either a profit or a loss. If the volume of production exceeds this level
(B.E.P. Level), there will be profit and if the volume of production falls
below this level, there will be loss. The BEP is the indicator of the
production level and so it is considered as an important tool in the hands of
the management.
Advantages of Breakeven Analysis:
- It helps the management
to decide on the exact volume of goods to be manufactured.
- It helps the management
to decide on the make or buy policies.
- It helps the management
to decide on the exact selling price of goods manufactured.
- It helps the management
to take decisions regarding current as well as new production systems
(Technology).
Contribution
Contribution is
not the profit. It is called total margin in excess of sales over variable cost.
Contribution =
Total Sales – Total Variable cost
Contribution
Margin Ratio= Sales – Variable Cost/ Sales x 100.
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