Cost and Management Accounting · Marginal Costing

Break-Even Analysis and Break-Even Chart for CA Intermediate

Updated 4 October 2026 · Fact-checked

Break-even analysis finds the sales level where total contribution equals fixed cost, so profit is nil. Break-even units = Fixed cost ÷ Contribution per unit. Break-even sales value = Fixed cost ÷ P/V ratio. Add target profit to fixed cost to get sales needed for a desired profit.

Understand Break-Even Analysis and Break-Even Chart

Every business has fixed costs that must be paid whatever the sales. Each unit sold adds contribution, which is selling price less variable cost per unit. Contribution first recovers fixed cost. Once fixed cost is fully recovered, every extra rupee of contribution is profit.

The break-even point (BEP) is the sales level at which total contribution equals total fixed cost. At BEP there is no profit and no loss. Below it you make a loss. Above it you make a profit. The gap between actual sales and BEP sales is the margin of safety.

You can express BEP in units or in rupees. Units need contribution per unit. Rupees need the P/V ratio (contribution ÷ sales). For several products, you use the weighted average P/V ratio at a fixed sales mix. If the mix changes, the BEP changes.

A break-even chart shows this visually. Sales and total cost lines are drawn against volume, and they cross at BEP. A contribution chart draws the variable cost line first and puts fixed cost on top of it. A profit-volume (P/V) graph plots profit or loss against sales. It starts at a loss equal to fixed cost at zero sales and crosses the sales axis at BEP.

The analysis assumes fixed cost stays fixed, variable cost per unit and selling price are constant, and production equals sales. Remember these assumptions when you write interpretation.

Key rules to remember

Contribution per unit: Contribution per unit = Selling price per unit − Variable cost per unit; Sales − Variable cost gives total contribution.
P/V ratio: P/V ratio = Contribution ÷ Sales × 100 = Change in profit ÷ Change in sales × 100; The second form is used when two periods' data are given. Fixed cost is unchanged between them.
BEP in units: BEP (units) = Fixed cost ÷ Contribution per unit; Round up if units are fractional, since you cannot sell part of a unit and break even.
BEP in value: BEP (₹) = Fixed cost ÷ P/V ratio = BEP units × Selling price; Use P/V ratio as a fraction, not a percentage.
Target profit sales: Required sales (₹) = (Fixed cost + Target profit) ÷ P/V ratio; Units = (Fixed cost + Target profit) ÷ Contribution per unit; For a profit after tax, convert it first: Profit before tax = Profit after tax ÷ (1 − tax rate).
Margin of safety: MoS (₹) = Actual sales − BEP sales = Profit ÷ P/V ratio; MoS % = MoS ÷ Actual sales × 100; Profit ÷ P/V ratio is a quick check.
Multi-product BEP: BEP (₹) = Total fixed cost ÷ Composite P/V ratio; Composite P/V = Total contribution ÷ Total sales at given mix; Split BEP sales among products in the sales mix ratio.
Cash break-even point: Cash BEP = (Fixed cost − Non-cash fixed cost such as depreciation) ÷ Contribution per unit; Use only when asked for cash break-even.

How to solve Break-Even Analysis and Break-Even Chart questions

Use this order for any break-even question. It keeps the working clean and earns step marks.

1Read what is asked: units, value, target profit, margin of safety or a graph.
2Separate costs into variable and fixed. Semi-variable costs must be split first, for example by the high-low method.
3Find contribution per unit and the P/V ratio. If two periods are given, find P/V from change in profit ÷ change in sales, then fixed cost = contribution − profit.
4Apply the BEP formula in the form asked. Show the formula, then the substitution, then the answer.
5For target profit, add the profit to fixed cost before dividing. For after-tax profit, gross it up first.
6For multiple products, compute the weighted contribution and composite P/V at the given mix, find total BEP, then split it by the mix.
7For graphs, choose a scale, plot the lines, mark BEP and margin of safety, and label the axes and lines.
8State a one-line interpretation, for example the margin of safety or what the result means for the business.

Quickest way: Contribution-first shortcut for MCQs and written answers

When to use it: Use when time is short, especially for MCQs and for the calculation part of long questions.

Compute contribution per unit and P/V ratio once. Nearly every answer comes from these two numbers.
For MCQs, estimate: BEP units = fixed cost ÷ contribution per unit. Use it to eliminate options that are clearly too high or too low.
Check direction: a higher fixed cost or a lower contribution must raise BEP. Drop options that move the wrong way.
Use the check Profit = MoS × P/V ratio to confirm margin of safety answers.
For multi-product questions, find total contribution at the given mix first. Do not average the P/V ratios unweighted.
In written answers, put the working in a small table: sales, variable cost, contribution, fixed cost, profit. Marks are given for each correct line even if the final answer is wrong.
For graphs, you need only two points per line: sales line through origin and one point, total cost line from fixed cost at zero output and one point.

Common mistakes in Break-Even Analysis and Break-Even Chart

Dividing fixed cost by selling price or by profit instead of contribution.
Students memorise 'fixed cost ÷ something' without the logic.
Fix: Remember that fixed cost is recovered only from contribution. Always find contribution first.
Using the P/V ratio as 40 instead of 0.40 when finding BEP in value.
The ratio is quoted as a percentage.
Fix: Convert to a fraction or divide by the percentage and multiply by 100 in the same step.
Treating a profit target as a cost reduction, or forgetting to add it to fixed cost.
Students compute BEP and then adjust loosely.
Fix: Write required contribution = fixed cost + target profit. Then divide.
Averaging product P/V ratios in a multi-product problem.
It looks quicker.
Fix: Compute total contribution ÷ total sales at the stated mix. The mix gives the weights.
Ignoring a change in fixed cost, price or variable cost in 'what if' parts.
Students reuse earlier contribution and fixed cost.
Fix: Recompute contribution and fixed cost for each new scenario, and write the revised figures separately.
Drawing the break-even chart with unlabelled lines or the total cost line starting at zero.
Rushing and confusing it with the sales line.
Fix: Start the fixed cost line at its value on the Y-axis, start total cost from the same point, and label BEP, margin of safety, profit and loss areas.

Worked examples

Example 1

A company sells a product at ₹50 per unit. Variable cost is ₹30 per unit. Fixed costs are ₹2,00,000. Find: (a) BEP in units and value, (b) units and sales needed for a profit of ₹1,00,000, (c) margin of safety if actual sales are 14,000 units.

Show the solution

Contribution per unit = 50 − 30 = ₹20.
P/V ratio = 20 ÷ 50 = 40%.
(a) BEP units = 2,00,000 ÷ 20 = 10,000 units.
BEP value = 10,000 × 50 = ₹5,00,000. Check: 2,00,000 ÷ 0.40 = ₹5,00,000.
(b) Required contribution = 2,00,000 + 1,00,000 = ₹3,00,000.
Units = 3,00,000 ÷ 20 = 15,000 units. Sales = 15,000 × 50 = ₹7,50,000.
(c) Margin of safety = 14,000 − 10,000 = 4,000 units = ₹2,00,000.
MoS % = 4,000 ÷ 14,000 × 100 = 28.57% approximately.

Answer: (a) BEP is 10,000 units or ₹5,00,000. (b) 15,000 units or ₹7,50,000 of sales. (c) Margin of safety is 4,000 units (₹2,00,000), about 28.57% of sales.

Example 2

A firm makes two products, A and B, in a sales mix of 3:2 in units. Selling price: A ₹100, B ₹150. Variable cost: A ₹60, B ₹90. Fixed costs are ₹2,40,000. Find the break-even sales in units and value for each product at the given mix.

Show the solution

Contribution per unit: A = 100 − 60 = ₹40. B = 150 − 90 = ₹60.
Take a mix pack of 3 units of A and 2 units of B.
Sales per pack = (3 × 100) + (2 × 150) = 300 + 300 = ₹600.
Contribution per pack = (3 × 40) + (2 × 60) = 120 + 120 = ₹240.
Composite P/V ratio = 240 ÷ 600 = 40%.
BEP sales = 2,40,000 ÷ 0.40 = ₹6,00,000.
Number of packs = 6,00,000 ÷ 600 = 1,000 packs. Check: 1,000 × 240 = ₹2,40,000.
Product A = 1,000 × 3 = 3,000 units = 3,000 × 100 = ₹3,00,000.
Product B = 1,000 × 2 = 2,000 units = 2,000 × 150 = ₹3,00,000.
Total = 3,00,000 + 3,00,000 = ₹6,00,000, which matches.

Answer: Total BEP sales is ₹6,00,000. Product A: 3,000 units (₹3,00,000). Product B: 2,000 units (₹3,00,000).

Exam tips

Write the formula and the substitution every time. Step marks are awarded even if arithmetic slips.
In graph questions, mark BEP, margin of safety, angle of incidence and the loss and profit areas, and give scale on both axes.
Read the sales mix carefully: is it in units or in rupees? The method changes.
If a question gives two years' sales and profit, find P/V ratio and fixed cost first. Everything else follows.
Add a one-line interpretation, such as what a lower BEP means, in the 70-marks written answers.

Practice questions from Marginal Costing

Break-Even Analysis and Break-Even Chart in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Break-Even Analysis and Break-Even Chart: frequently asked questions

What is the break-even point formula for CA Intermediate?

BEP in units = Fixed cost ÷ Contribution per unit. BEP in value = Fixed cost ÷ P/V ratio. Both come from the idea that contribution must equal fixed cost at break-even.

How do I draw a break-even chart in the exam?

Put volume on the X-axis and rupees on the Y-axis. Draw the fixed cost line parallel to the X-axis, the total cost line starting from fixed cost at zero output, and the sales line from the origin. Mark the point where sales and total cost cross as BEP, and label margin of safety, profit and loss areas.

How is multi-product break-even calculated?

Use the given sales mix to find total sales and total contribution, then compute the composite P/V ratio. Divide total fixed cost by it to get total BEP sales. Then split that figure among products in the sales mix ratio.

How do I find sales for a target profit after tax?

First convert after-tax profit to pre-tax profit by dividing it by (1 − tax rate). Add that to fixed cost. Divide the total by contribution per unit or P/V ratio.