Question

W2A1:

Question: Perform an Internet search using the term break-even analysis. Select and read a case study or article from the results of your search. Summarize the case study or article, and relate the ideas of the article to what you have learned this week in this course.

Answer 1

Break even analysis:- The term break even analysis means the aomunt of units that should be sold to meet the fixed cost incurred by the business.

In a business first we should invest some thing to start the business. Then to continue the business we should incurr some expenses which can be categorized into Fixed overheads and Vaiable over heads

Fixed over heads are the indirect expenses which are incurred without depending on the numer of units sold. For example:- Salaries to the administrative staff, Depreciation on assets, Rent of the office building etc..

And Variable overheads are the indired expenses which are incurred depending on the number of units sold. For example:- Sales manager commission, Package, delivery charges etc.

Fixed over heads are the expenses which are to be paid even we earned profit or incurred loss. So they are called as Fixed over heads.

Here to meet those unevitable expenses the amount of or number of units we have to sell is called as Break Even Point (BEP). The analysis to get that point is called as Break Even Analysis.

Formule:-

Fixed cost + Variable Cost + Profit = Sales

Fixed cost + Profit = Sales - Variable cost

Fixed cost + Profit = Contribution

Break Even Point ( in units) = Fixed cost / Contribution per unit

Break Even Point ( in Sales ) = Fixed cost / P.V Ratio

For example lets consider the Cost sheet analysis of a company

In order to meet the fixed cost the comany sales should be 29483 millions of dollars.

This is the application of Break even anaysis to a case study.