Accounting Assignment Help With Graphical Presentation of BEP

1.2 Graphical Presentation of BEP

In the figure, Horizontal axis measures output in units and the vertical axis measures sales and costs. Sales line ( os ) is an upward rising straight line. This is because sales increase with production. OA is fixed cost which maintained within the given range of output.

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Total Costs = Fixed Costs + Variable Costs

So, total costs line (AT) starts from A. It means even if output is zero and you are at point O, still you have to incur fixed costs of OA. Thus AT represents total costs line. OS represents sales line. OS and OT intersect at point P. It is breakeven point. BP represents both total costs and sales at breakeven point.

break even analysis

Illustration 1:

Assam Pharmaceutical Ltd. Manufactured 26000 lakhs tablets and capsules for Rs 2860 crore. Its coat of sales and profit analysis is gven below :

$ Crore Per unit

Direct material7853.02
Direct wages3121.2
Direct Expenses212.82
Prime cost13095.03
Manufacturing overhead ( 60% variable )3001.15
Administrative Overhead ( 100% fixed )400 1.54
Selling & distribution Overhead ( 30% variable )3001.15
R & D – Amortisation200.77
Total cost25099.65

The company was operating at 60 % capacity.

Find out BEP & margin of safety?

The company was considering a proposal to operate at 75% capacity level. Since the fixed cost is step cost in nature, a proper analysis has been made on the behaviour of fixed cost. It is projected that fixed cost (expecting R & D cost ) would increases @ 5 % for every 10% capacity utilisation above 60 %. However, the additional production can be sold only at 20% discount. Apply marginal cost analysis explain whether additional production and sales should be carried out.


Break even and margin of safety analysis

$ In crorePer unit
Variable cost :
Direct material7853.02
Direct wages3121.2
Direct expenses212.82
Manufacturing overhead180.69
Selling & administration overhead90.35
Selling & administration overhead90.35
P/V ratio (%)44.79

Fixed cost

Manufacturing overhead120
Selling & administration overhead210
Administration overhead400
R&D – amortisation200
BEP ( units in crore ) ( fixed cost/ contribution per unit )188.76
BEP ( in value ) ( fixed cost/ P/V ratio )2076.35
Margin of safety783.65
Margin of safety(%)37.74

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