Subject :- Engineering Economics and Management

Topic :- Break Even Analysis And Types Of Market

MECHANICAL ENGINEERING

4th – B

Prepared by:- 130120119126: Pandya Kartik

Break-Even Analysis

INTRODUCTIONA breakeven analysis is used to determine

how much sales volume your business needs to start making a profit.

The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.

Fixed Cost:The sum of all costs required to produce the first unit of a product. This amount does not

vary as production increases or decreases, until new capital expenditures are needed.

Variable Unit Cost:Costs that vary directly with the production of one additional unit.

Expected Unit Sales:Number of units of the product projected to be sold over a specific period of time.

Unit Price:The amount of money charged to the customer for each unit of a product or service.

Total Variable Cost:The product of expected unit sales and variable unit cost. (Expected Unit Sales * Variable Unit Cost )

Total Cost:The sum of the fixed cost and total variable cost for any given level of production. (Fixed Cost + Total Variable Cost )

Total Revenue:The product of expected unit sales and unit price. (Expected Unit Sales * Unit Price )

Profit (or Loss):The monetary gain (or loss) resulting from revenues after subtracting all associated costs. (Total Revenue - Total Costs)

BREAK EVEN POINT:Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs).

Break Even Point (IN UNIT)= Fixed Cost /S. Price- Variable Unit Cost

Break Even Point (in Rs)=Fixed Cost/ S. Price-Variable unit Cost*Units

For example, suppose that your fixed costs for producing 100,000 product were 30,000 rs a year.

Your variable costs are 2.20 rs materials, 4.00 rs labour, and 0.80 rs overhead, for a total of 7.00 rs per unit.

If you choose a selling price of 12.00 rs for each product, then:

30,000 divided by (12.00 - 7.00) equals 6000 units.

This is the number of products that have to be sold at a selling price of 12.00 rs before your business will start to make a profit.

USES OF BREAK EVEN POINT

Helpful in deciding the minimum quantity of sales

Helpful in the determination of tender price

Helpful in examining effects upon organization’s profitability

Helpful in deciding about the substitution of new plants

Helpful in sales price and quantityHelpful in determining marginal cost

LIMITATIONS Break-even analysis is only a supply side (costs only)

analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.

It assumes that fixed costs (FC) are constant

It assumes average variable costs are constant per unit of

output, at least in the range of likely quantities of sales.

It assumes that the quantity of goods produced is equal to

the quantity of goods sold (i.e., there is no change in the

quantity of goods held in inventory at the beginning of the

period and the quantity of goods held in inventory at the end

of the period.

In multi-product companies, it assumes that the relative

proportions of each product sold and produced are constant.

Types of Markets

What are Markets?A market is where buyers and sellers:• meet to exchange goods and services• usually in exchange for money

The market may be in one specific place

or

not exist physically at all

An Invisible Market?

Markets can exist:• over telephone lines• online• in emails

TYPES OF MARKETSLet’s start with a definition:A market is anywhere where buyers and sellers come

together to transact with each other.

TYPES OF MARKETSConsumer marketsBusiness marketsGlobal marketsNonprofit/Government markets

Consumer Market: The consumer market represents

individuals and families purchasing goods and services for personal consumption.

Continues...You should be familiar with these:• consumers interact with sellers

to buy goods and services• sellers can be retailers using high street shops or out-of-

town stores • sellers can use other sales media

Business MarketThe market of good and services to individuals and

organization for the purpose other then personal consumption is the business market

The characteristics of business marketFocus: The focus of the market is organizations. They are geographically concentrated. It is business to business marketing. 

Continues...Profit: The customer buy products for business use,

reselling or making other products. Their aim is to make profit.

Demand: The demand for products is generally inelastic.

It is not much effected by price. Buyers buy in large volume.

Continues...Relationship:

There is close relationship between the buyer and the seller. Relationship is important in marketing.

Global market

Global market consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

ORCompanies selling goods and services in international/global

markets. They are more challenging than local markets.

Continues...Example:

As we see nowadays China has the largest global market for smart devices.

Non-profitable marketCompanies selling their goods to non

profit organizations such as universities, charitable organizations, and need to be priced carefully because these people have lower purchasing power.

Thank You..