Break-Even Analysis-Short Note Summary At A Glance

Break - Even Analysis- Short Notes Formulas: 01. Marginal Cost = in variable cost in output levels 02. Contribution / unit = Selling price / unit - variable cost / unit 03. Contribution Margin = ContributionRevenue 100 04. Break - even point (units) = Fixed CostsContribution (SPVC) 05. Break - even point (value) = Break - even units Selling price / unit 06. Margin Of Safety = Budgeted Sales - Break-even sales 07. Margin of Safety as a % of revenue = Margin of safetyRevenue 100 08. Units for Target Profit = Fixed Costs+Target ProfitContribution /unitBreak - Even Graph ADVANTAGES and DISADVANTAGES of Break-even Analysis (for theory) Advantages Disadvantages Measure profit and losses at different levels of production and sales Assumes that sales prices are constant at all levels of output. Predict the effect of changes in sales prices Assumes production and sales are the same. Analyze the relationship between fixed and variable costs. Break-even charts may be time-consuming to prepare. Predict the effect of cost and efficiency changes on profitability. It can only apply to a single product or a single mix of products.