MBA Accounting

Most managers would able to understand the term “break-even” which means there is no loss or gain.

Similarly, in the cost-volume-profit relationship, break even point(BEP) is the LEVEL OF SALES AT WHICH PROFIT IS ZERO. At this point , there is NO gain or loss

Refer to the below situation:

Total ($) Per unit($)

Sales ( 500 Product A) 200,000 550

Less: Variable expenses 50,000 200

Contribution margin 150,000 350

less: Fixed expenses 70,000

Net Operating Income 80,000

Salient points to note:

• Once the break even point has been reached, net operating income will increase by the unit contribution margin for each additional unit sold in this case $350
• Even if there is no sales, the company loss would equal to its fixed expense which is $70,000
• In the above case, there is ample profit, the decision maker can still price the products lower until the contribution margin= fixed expense which is the breakeven point level of sales.

This entry was posted on Friday, November 2nd, 2007 at 6:30 am and is filed under 2. Cost-Volume-Profit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “Break Even Point (BEP) in Cost-Volume-Profit Relationship”

1. Snapshot Of Articles Under Cost-Volume-Profit(Managerial Accounting) | MBA Accounting Says:
   March 20th, 2008 at 2:18 am

   […] Break-even point in Cost-Volume-Profit […]

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