logo

Introduction to the Breakeven Point

   

Added on  2020-04-13

2 Pages350 Words49 Views
Solution 2:Breakeven refers of the point of sales where all the cost has been recovered without anyprofit. So it can be said that breakeven it the point of sales quantity (in units) or revenue(amount) that is essential to need the variable and fixed expenses of the company. Any quantitybelow this point will lead to loss. The profit at breakeven sales is always zero (Horngren, 2009). The formula to calculate the breakeven is: Fixed Cost/Contribution margin ratioSo it is essential to have information on sales revenue, variable cost and fixed costincurred in any company. There are different categories of revenue and cost associated accordingto the type of industry. So it can be said that profit and loss is the deciding factor to determinethe breakeven point.In service industry there are revenue generated through sales of service supplies as it isnot in case of manufacturing industries where the sales of goods is the deciding factor. So themain items of the sales revenue in case of service industry are gross amount received to providesuch services and any other incomes as a part of business activities (Coombs, Hobbs and Jenkins,2005). Cost of goods sold or expenses can be divided into two parts variable and fixed. Variableexpenses can be raw material used to render such services, labour implied to provide suchservices, shipping cost, and sales commission. Fixed expenses can be salaries paid to employees,rent, telephone expenses and utilities expenses. So breakeven for service industry will be same as above formula but it is beneficial tocalculate the breakeven in amount not in number in number of services rendered.

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Methods of Determining Breakeven Point
|9
|2031
|234

Costing Questions - Short Answer Questions and Real World Example
|7
|1224
|288

Statement Showing Calculation of Breakeven Units
|8
|931
|75

Answer 1. BREAKEVEN POINT (UNITS)=. (FIXED EXPENSES/CON
|4
|466
|71

MANAGEMENT ACCOUNTING FOR NON-ACCOUNTANTS
|6
|1056
|278

Corporate Finance: Cost Estimating and Investment Assessment Methodologies
|11
|2681
|456