Which of the following are correct formulas of Break Even Point (B.E.P.)?

A. BEP = Fixed cost / P/V Ratio
B. BEP = Fixed cost / (1 - Variable cost / Sales)
C. BEP = Change in Profit / Change in Sales
D. BEP = Fixed cost / Contribution per unit
E. BEP = Actual sale – Margin of safety

Choose the correct answer from the options given below:

Correct option is C

Break-even point (BEP) is the level of sales at which total revenue equals total cost, meaning there is neither profit nor loss. The BEP can be calculated using different methods, and the formulas vary depending on whether it is expressed in terms of units or sales value.

Correct Formulas:

1. BEP (in sales value) = Fixed Cost / P/V Ratio

   • Here, P/V Ratio (Profit-Volume Ratio) = Contribution / Sales
   • This formula calculates the sales revenue required to break even.

2. BEP (in sales value) = Fixed Cost / (1 - Variable Cost / Sales)

   • This formula is derived from contribution margin analysis.
   • It represents the proportion of fixed costs relative to the total revenue.

3. BEP (in units) = Fixed Cost / Contribution per Unit

   • Contribution per unit = Selling Price per unit – Variable Cost per unit
   • This formula determines the exact number of units that need to be sold to break even.

4. BEP = Actual Sales – Margin of Safety

   • Margin of Safety (MoS) = Actual Sales – BEP Sales
   • This formula helps in determining how much sales can drop before the business incurs a loss.

Thus, the correct answer includes A, B, D, and E as they correctly represent valid BEP formulas.

Information Booster:

1. Break-Even Point (BEP) Concept:

   • It is the point where Total Revenue = Total Cost (Fixed Cost + Variable Cost).
   • At BEP, there is zero profit and zero loss.
   • Businesses use BEP analysis to determine pricing strategies, cost control, and profitability planning.

2. Types of Break-Even Analysis:

   • BEP in units:Shows the number of products that must be sold to cover fixed costs.
   • BEP in sales value:Shows the total sales revenue needed to break even.
   • BEP using Margin of Safety: Helps in risk assessment by showing how much sales can decline before losses occur.

3. Importance of P/V Ratio:

   • A higher P/V ratio means that a business reaches BEP sooner, leading to faster profitability.
   • P/V Ratio = (Contribution / Sales) × 100

Additional Knowledge:

​C. BEP = Change in Profit / Change in Sales

• This formula is incorrect because it represents Marginal Profit Ratio or Contribution Margin Ratio, not BEP.
• BEP focuses on covering fixed costs, whereas this formula is used in profitability analysis to measure how profits change with sales fluctuations.