Marginal costing

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Querist : Anonymous (Querist)

10 July 2012 how increase or decrease in fixed cost affect Break Even Point

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Guest (Expert)

10 July 2012 The formula for Break Even Point is Fixed Cost/ P/V Ratio.

Suppose P/V Ratio is 50%. Fixed Cost is Rs. 5000. then BEP will be 5000/.5 = Rs. 10000.
That means you have to effect sales of Rs. 10000 to reach a point of no profit or no loss.

Another situation is suppose Fixed Cost has increased and it is now Rs. 6000. Then your BEP will be 6000/.5= Rs 12000.

This means that increase in fixed cost increases our point of no profit no loss in a business.

C.A Anshul Singhal

C.A Anshul Singhal (Expert)
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10 July 2012 break even point depend on fixed cost.
example
total fixed cost of a.p industries---20000 RS
Variable cost-------------rs 2 per unit
selling price------------RS5
CONTRIBUTION-----------6-2=RS4
BREAK EVEN POINT(QTY)---20000/4=5000 UNIT
IF FIXED COST REDUCE TO RS15000. THEN
BREAK EVEN POINT ------15000/4=3750UNIT

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