Break Event Analysis

Course : Managerial Finance Lecture : Marc Credit Hours : 3 Credits Semester Sessions : 3 Semester, 2021/2022 Session Prepared By : Kenzo LECTURE NOTES BREAK EVENT ANALYSIS A. Understanding From the results of its operations a company can obtain profits and can also suffer losses. Based on This possibility is the head of the company in this case Financial managers are required to know up to the level how much sales/income so that the company doesn't suffer make a loss. Break even point analysis is a method that can be used to find out the sales volume minimum that must be achieved so that the company does not suffer losses or have not yet made a profit. To analyze break even points, several are used assumptions as follows: 1. Costs in a company can be classified into 2 groups, namely: a. Variable Costs are costs that always change accordingly with changes in sales volume. b. Fixed Costs are costs that are always fixed and not fixed affected by sales volume but these costs is linked to time, so these costs will constant over a certain period of time. 2. The total amount of variable costs varies drastically proportional to sales volume, which means that The variable costs per unit are fixed. 3. The total amount of fixed costs does not increase even though there is a change in sales volume, this is meaningful the amount of fixed costs per unit varies with changes in sales volume, the greater the volume sales will be smaller, the fixed costs per unit will be smaller and on the contrary. 4. The selling price of each unit does not change over the period of time analysis. 5. The company only produces/sells one type of product and if you sell more than one type of item, then the balance of the proceeds from the sale of each item sales or sales mix remains constant. When analyzing break even points it is not based Based on the assumpt mentioned above, the results of the analysis will be.misleading. Some uses of Break Even Point Analysis, that is : 1) Break even point analysis is very useful to take decision to create a new product line, for this reason it is necessary to plan the volume level that must be produced and sold to maintain levels expected profitability. 2) In an effort to expand a company, break analysis Even points will provide a broad framework for use study and analyze the consequences that will arise at the company's operational level. 3) In order to modernize and automate, where the company will reimburse variable costs and fixed costs, then the break even point analysis will have an impact that will arise from changes in these costs. B. Calculation of Break Even Points The most practical way to calculate the break even point is to use mathematical methods. Calculation by means This mathematics is done on the basis of units and sales value. Another way to determine the break even point is with a graph, in the graph you will see a cost line fixed, total costs which describe the sum of fixed costs and variable costs as well as sales/revenue lines. The amount of sales/production volume in units will be appears on the horizontal axis and the amount of costs and Sales revenue will appear on the vertical axis. By break even point chart is determined by the intersection between total cost and sales/revenue lines. If from that point, a straight vertical line is drawn The break even size can be seen in units and from points If you draw a horizontal straight line it will appear big break even in rupiah. In drawing the fixed cost line there are two ways, namely by drawing the fixed cost line parallel to the horizontal axis and drawing the fixed cost line parallel with the variable cost line. C. Margin of Safety The margin of safety is a figure that shows the distance between planned sales and actual sales break even point, thus the margin of safety describes the distance limit where it decreases sales beyond that distance, the company will suffer loss.