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Asked Dec 18, 2019
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What is breakeven analysis? Give three examples?

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Expert Answer

Step 1

Breakeven analysis is an analysis method to derive the point of sales where the contribution generated on sale is just equal to the fixed costs i.e. at the level of sales where the profit generated is zero. The contribution is computed by subtracting the variable cost from the selling price

Breakeven is computed by following formula

Breakeven point in units= Fixed cost/(Selling price per unit-Variable cost per unit

Step 2

Examples of breakeven analysis ar...

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1 Companies with high fixed cost $ Fixed cost per month (a) Sales revenue Variable cost So, contribution c (1000-800) Breakeven point (a/c) 1,000,000 1000 800 200 5,000 units 2 Companies with lower fixed cost$ Fixed cost per month (a) Sales revenue Variable cost So, contribution c (1000-800) Breakeven point (a/c) 500,000 1000 800 200 2,500 Junits 3 Companies with lower fixed cost$ Fixed cost per month (a) Sales revenue Variable cost So, contribution c (1100-800) Breakeven point (a/c) 500,000 1100 800 300 1,667 units

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Cost Volume Profit Analysis

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