How is break even point determinedSolutionAny business acti

). How is break even point determined

Solution

Any business activity is perfomed with the objective of generating money.Break even point is the level at which there is neither profit nor loss.We can say that all revenues are equal to all expenses. Break even point is necessary to detremine so that any business entity can understand the target sales level to earn profit as well as be aware of loss if sales is below that level.

Break even point is calculated in two terms-(a) Unit and (b) dollar sales

Break even point in unit sales = Fixed Expenses / Contribution Margin per unit

Break even point is dollar sales = Fixed Expenses / Contribution Margin Ratio

Note:

a.Contribution margin per unit = Sales per unit - Variable cost per unit

b. Contribution Margin ratio = Contribution Margin / Sales revenue