BEP

Example 1
Using the following data, calculate the
breakeven point and margin of safety in units:
Selling Price = 50
Variable Cost = 40
Fixed Cost = 70,000
Budgeted Sales = 7,500 units
Determine contribution, breakeven point and
margin of safety
 Example 1: Solution
Contribution = 50 - 40 = 10 per unit
Breakeven point = 70,000/10 = 7,000
units
Margin of safety = 7500 7000 = 500 units
 Example 2
Using the following data, calculate the level
of
sales required to generate a profit of
10,000:
Selling Price = 35
Variable Cost = 20
Fixed Costs = 50,000
 Example 2: Solution
Contribution = 35 20 = 15
Level of sales required to generate profit of
10,000:
50,000 + 10,000
15
4000 units
 Break-Even Chart
A Business supplies the following figures about its activities:
Fixed Costs: = 300,000
Variable Cost: = 20 per unit
Forecast output (Sales): = 20,000 units
Selling Price: = 50 per unit
Illustrate by means of a break-even chart:
The break-even point
The profit at full capacity
The margin of safety (40 marks)
 Answer
Units 20,000
Fixed Costs: 300,000
Variable Costs (20,000 x 20) = 400,000
Total Costs: 300,000 + 400,000 = 700,000
Total Revenue: (20,000 x 50) = 1,000,000
Profit = 1,000,000 - 700,000 = 300,000
 Answer
Break-even formula:
Fixed Costs
Selling Price(SP) per unit Variable Cost(VC) per unit

= 300,000
50 20
= 10,000 units
 Answer
Drawing the Break-Even Chart
To plot break-even point on chart
From X axis 10,000
From Y axis 500,000 (10,000 x 50)
 BREAKEVEN CHART

000
Total
1000 Revenue
Profit at full
900 Capacity
800 PROFIT
700 Total Cost
600
Break-even
500
point
400
300 F.C.
200 Loss Margin of Safety
100
0
5,000 10,000 15,000 20,000 Units
 Example 1
Using the following data, calculate the
breakeven point and margin of safety in units:
Selling Price = 50
Variable Cost = 40
Fixed Cost = 70,000
Budgeted Sales = 7,500 units
Determine contribution, breakeven point and
margin of safety
 Example 1: Solution
Contribution = 50 - 40 = 10 per unit
Breakeven point = 70,000/10 = 7,000
units
Margin of safety = 7500 7000 = 500 units
 Example 2
Using the following data, calculate the level
of
sales required to generate a profit of
10,000:
Selling Price = 35
Variable Cost = 20
Fixed Costs = 50,000
 Example 2: Solution
Contribution = 35 20 = 15
Level of sales required to generate profit of
10,000:
50,000 + 10,000
15
4000 units