CA INTERMEDIATE: COSTING & FM · MARGINAL COSTING

Break-even point (units and sales value)

BEP (units) = Fixed cost ÷ Contribution per unit. BEP (₹) = Fixed cost ÷ P/V ratio.

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Worked examples

Example 1 · level 1

Mehta Polymers sells steel chairs at ₹285 each. Variable cost is ₹255 per unit and fixed costs are ₹60,000 a year. Find the break-even point in units.

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Contribution per unit = ₹30.
BEP = ₹60,000 ÷ 30 = 2,000 units.

Answer: 2,000 units

Example 2 · level 2

Kapoor Electricals has fixed costs of ₹5,70,000 and a P/V ratio of 50%. Find the break-even sales (₹).

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BEP = ₹5,70,000 ÷ 50% = ₹11,40,000.

Answer: ₹11,40,000

Example 3 · level 3

Reddy Cements — Period 1: sales ₹5,60,000, profit ₹80,000. Period 2: sales ₹8,10,000, profit ₹1,80,000. Find the break-even sales.

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P/V = ₹1,00,000 ÷ ₹2,50,000 × 100 = 40%.
FC = 40% × ₹5,60,000 − ₹80,000 = ₹1,44,000.
BEP = ₹1,44,000 ÷ 40% = ₹3,60,000.

Answer: ₹3,60,000