Theory of cost and break even analysis pdf

Break even quantity fixed costs sales price per unit variable cost per unit where. Break even analysis, break even point, p v ration labour cost bonus premium. In the shortrun, at least one factor of production is fixed, so firms face both fixed and variable costs. Break even analysis is of vital importance in determining the practical application of cost functions. Costvolume profit cvp analysis is based upon determining the breakeven point of cost and volume of goods and can be useful for managers making shortterm economic. Sales price per unit is the selling price unit selling price per unit. Breakeven analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs. Scribd is the worlds largest social reading and publishing site.

Its inextricably linked to the break even point bep, which indicates at what moment an investment will start generating a positive return. Break even analysis is a concept used very widely in the production management and costing. It aims at classifying the dynamic relationship existing between total cost and sale volume of a company. Break even analysis is a very important aspect of business plan. In the cost theory, there are two types of costs associated with production fixed costs and variable costs. Pdf on jan 1, 2014, john mcgee and others published breakeven analysis find, read and cite all the research you need on researchgate. Marginal costing statement in englishpv ratio, bep, required profit, required sales. Theory of cost and break even analysis free download as powerpoint presentation. However, the break even is an excellent tool to help quantify the level of production needed for a new business or a new product. Pdf the break even theory is based on the fact that there is a minimum production level at which a venture neither make profit nor loss. It is usually included as a part of business plan to observe the profits and is enormously useful in pricing and controlling cost. Fixed costs are costs that do not change with varying output i. S x pv ratio fixed cost at break even sales, contribution is equal to fixed cost.