Break even point analysis calculated from fixed and variable cost 1 unit electricity cost in andhra pradesh


These costs vary in direct proportion to quantity sold or unit volume. Variable costs for selling goods, for instance, might include the direct cost the seller pays to acquire each unit. As a result, the total variable cost can be simply cost per unit multiplied by the unit volume. Semi-variable costs

Semi-variable costs are constant across a range of business volumes, but change when volume goes out of range. Wages for a call center operator, for example, might be a fixed cost when daily call volume is between 0 and 100 calls per day. A second operator might be necessary when call volume is 101 to 200. And, a third might be necessary if daily call volume is 201 to 300.

In business, break even point usually means the unit volume that balances total costs with total gains. For the analyst, break even is the quantity Q for which cash outflows equal cash inflows, exactly. At the break even quantity, therefore, net cash flow equals zero.

Simple break even analysis finds Q by analyzing relationships between just three variables: fixed costs, variable costs, and cash inflows. The analysis must consider additional factors, however, when semi-variable costs or variable pricing are present. Break even point as a time period

Note that business people also refer to a similar but different concept, the break even point in time, or payback period. Payback period is the time necessary for investment returns to cover investment costs. Payback analysis does not consider units, but instead the timing of cash inflows and outflows. For more on the break even point in time, see Payback period. Break even points for business start up

Business people starting a new business need especially to understand both kinds of break even points (break even time and break even unit volume). This is because start ups typically lose money for a while before becoming profitable. There is a limit, however, to the time owners can tolerate losses. Before launching a new business, therefore, they have a keen interest in knowing the break even business volume. The new firm turns profitable only when it exceeds break even volume. A decision to launch the business may depend on the owners’ view of the time and expense required to reach that volume. Explaining break even in context

The easiest approach to finding the break even volume is to use the simple equation separately for each range. Consequently, total fixed costs in each range i are the sum of the given overall fixed cost ( F) and the semi-variable cost for the range ( sv i) . Step 1. Finding Fixed Costs For Each Range

The next step is to find which ranges, if any, contain a break even point. Depending on the input figures, it is possible to have no ranges with a break even point, or a break even point in just one range, or a break even point in multiple ranges.

To test these two criteria for this example, we need only calculate net cash flow at the lower limit and at the upper limit. This is because, here, net cash flow across each range is a linear function of unit volume. That is, net cash flow is a "straight line" function. Example Calculations With Semi-Variable Costs

Range 2 has a break even point because net cash flow is negative at the range lower limit (31 units) and positive at the upper limit (60 units). Within this range, therefore, semi-variable costs sv 2 are constant and thus add into fixed costs, F. As a result, the analyst finds the Range 2 break even point with the break even formula Q = F / ( P – v ), applying it to this range only.