Page 223 - DMGT409Basic Financial Management

Basic Financial Management

Notes Tata Motors despatched 3,000 units of Nano in October. However, sales are expected to
improve with the open sales in many states. Mr Bhutada said that the operating profi t on
Nano might have improved quite significantly with company hiking the price of the car

by ` 9,000.
Volume game
“Nano is a volume game which is purely driven by pricing. The ex-showroom price of even
the base version of Nano is now ` 1.4 lakh. There are pressures on raw material front,” said
another analyst.
Source: http://www.thehindubusinessline.in/2010/12/01/stories/2010120152730200.htm

14.6 Summary

z Break even analysis refers to ascertainment of level of operations where total revenue equal
to total costs.

z This is the point where profit equal to zero or in other words BEP is point where there is no
profit and loss.

z The break even chart indicates fixed and variable costs, sales revenue so that profit or loss

at any given level of production or sales can be ascertained.
z Break even point helps in assessing the viability of the organization and to take decisions
on profit planning and cost control.

z Break even point indicates the level of operating capacity and sales to be achieved to
recover all costs.

14.7 Keywords

B E P (Units): It is the level of units at which the firm neither incurs a loss nor earns profi t

BEP (Volume): It is the level of sales in Rupees at which the firm neither incurs a loss nor earns
profi t
Contribution: It is an amount of balance available after the deduction of variable cost from the
sales

Fixed Cost: It is a cost which is fixed or remains the same for irrespective level of production

Variable Cost: It varies along with the level of production

14.8 Self Assessment

Fill in the blanks:
1. .................... is the point where total revenue equals the total costs.
Fixed Costs
2. .................... =
Selling price – Variable costs per unit
3. The .................... deals with the net effect of changes in cost, price and volume in profi ts.
4. The .................... can be more appropriately called the cost-volume-profi t graph.
5. The firm will make .................... below the BEP.

6. The firm will make .................... above the BEP.

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