What is breakeven analysis? What are the common cost volume profit formula?

Breakeven Concept: 

• Break-even analysis relates to the calculation of the necessary levels of activity required in order to break even in a given period
• Break-even occurs when total revenue and total costs are equal resulting in zero profit
• Breakeven can be calculated by units (breakeven point - BEP) or dollars (breakeven in dollars - BE$) 
• Break-even analysis involves the contribution margin concept
• Contribution margin (CM) is calculated by deducting total variable costs (VC) from total revenue (CM = Sales - VC) 
• Contribution margin per unit (UCM) can be calculated by deducting variable cost per unit (UVC) from revenue per unit (UCM = Selling price - UVC) 

Marginal Accounting Statement:

Sales 

Less: Variable Cost (VC)

Contribution margin (CM) 

Less: Fixed Cost (FC) 

Profit 

Cost Volume Profit Formula: 

Contribution margin ratio (CMR): 

1. UCM / selling price 
2. total contribution margin / sales

BEP (breakeven point):

FC / UCM 

BE$ (breakeven dollar): 

FC/ CMR

Targeted profit:

(FC + targeted profit)/UCM

Margin of Safety:

1. Sales in unit - BEP

2. Sales in dollar - BE$

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