Management Accounting · Marginal Costing (Management Accounting)

Break-Even Analysis and Break-Even Chart for CMA Inter

Updated 10 October 2026 · Fact-checked

Break-even point is the level of sales at which total revenue equals total cost, so profit is zero. Calculate it as Fixed Cost ÷ Contribution per unit for units, or Fixed Cost ÷ P/V ratio for sales value. For target profit, add the profit to fixed cost before dividing.

Understand Break-Even Analysis and Break-Even Chart

Every business has fixed costs that it pays whatever it sells. Each unit sold then adds a contribution, which is selling price less variable cost per unit. The first units sold only recover fixed costs. Once fixed costs are fully covered, every extra unit adds to profit.

The break-even point (BEP) is the sales level where total contribution equals fixed cost. At BEP there is no profit and no loss. Below it you make a loss. Above it you make a profit.

The margin of safety (MOS) is the gap between actual sales and break-even sales. A larger margin means the business can survive a bigger fall in sales.

A break-even chart shows this picture. Sales volume or value goes on the X-axis and cost and revenue on the Y-axis. You plot the fixed cost line, the total cost line and the sales line. They meet at the BEP. A profit-volume (P/V) graph plots profit or loss directly against sales. It cuts the X-axis at BEP and starts at minus fixed cost when sales are nil.

All of this assumes costs split cleanly into fixed and variable, selling price and variable cost per unit stay constant, and in multi-product cases the sales mix stays constant. Say these assumptions when the question asks for limitations.

Key rules to remember

Contribution per unit: Contribution per unit = Selling price per unit − Variable cost per unit; Total contribution = Sales − Total variable cost.
P/V ratio: P/V ratio = Contribution ÷ Sales × 100 = Change in profit ÷ Change in sales × 100; The second form works when you have two periods and fixed cost is unchanged.
BEP in units: BEP (units) = Fixed cost ÷ Contribution per unit; Round up to a whole unit if the question wants whole units.
BEP in value: BEP (₹) = Fixed cost ÷ P/V ratio = BEP units × Selling price; Use the ratio as a fraction or decimal, not as a percentage number.
Target profit sales: Required sales (units) = (Fixed cost + Target profit) ÷ Contribution per unit; Required sales (₹) = (Fixed cost + Target profit) ÷ P/V ratio; For a target profit after tax, first convert it to profit before tax: PBT = PAT ÷ (1 − tax rate).
Margin of safety: MOS (₹) = Actual sales − BEP sales = Profit ÷ P/V ratio; MOS ratio = MOS ÷ Actual sales; Profit ÷ P/V ratio is a quick shortcut.
Multi-product BEP: Composite BEP (₹) = Fixed cost ÷ Composite P/V ratio; Composite P/V ratio = Total contribution ÷ Total sales for the given mix; Split BEP between products in the sales mix ratio (by value).
Cash break-even point: Cash BEP = (Fixed cost − Non-cash fixed cost such as depreciation) ÷ Contribution per unit; Use when the question mentions depreciation and asks for cash break-even.

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

Use this order for any break-even question, whether it asks for a number or a chart.

1Read the data and list selling price, variable cost and fixed cost. Check whether fixed cost is for the year or the month.
2Compute contribution per unit and the P/V ratio. If only totals are given, compute them from total sales and total variable cost.
3If two periods are given, find P/V ratio as change in profit ÷ change in sales, then find fixed cost as Contribution − Profit.
4Calculate BEP in units or value as asked. For target profit, add the profit to fixed cost first.
5For multiple products, fix the sales mix, compute the composite contribution per unit or composite P/V ratio, then find the BEP and split it by mix.
6Compute margin of safety and profit if asked, and check that Profit = Contribution − Fixed cost.
7For a chart, choose a scale, plot fixed cost, total cost and sales lines, mark BEP, and label the profit and loss areas and margin of safety.
8Write one line of interpretation, such as what the margin of safety tells management.

Quickest way: Contribution shortcut for numericals

When to use it: Use for single-answer MCQs and for the first part of a written question when time is short.

Find contribution per unit first. Do not compute total cost.
Divide fixed cost by contribution per unit for BEP units, or by P/V ratio for BEP value.
For target profit, add profit to fixed cost and divide again by the same figure.
For margin of safety, use Profit ÷ P/V ratio.
For a chart, plot only three points per line: at zero sales and at one other level, then join with a ruler.

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

Dividing fixed cost by selling price less total cost per unit.
Students include fixed cost per unit in the unit cost and call it profit per unit.
Fix: Use only variable cost to find contribution. Fixed cost is the numerator, never part of the denominator.
Using the P/V ratio as 40 instead of 0.40.
The ratio is written as a percentage, and the % is dropped when dividing.
Fix: Convert the percentage to a decimal or fraction before dividing.
Adding target profit to the contribution instead of to fixed cost.
Students mix up what contribution has to cover.
Fix: Contribution must cover fixed cost plus profit. Put the profit in the numerator with fixed cost.
Using a simple average P/V ratio for multi-product problems.
It looks quick, but products have different sales weights.
Fix: Compute total contribution ÷ total sales for the given mix. If the mix changes, recompute it.
Starting the total cost line at zero on the chart.
Students forget that the total cost line starts at the fixed cost level.
Fix: Draw the fixed cost line parallel to the X-axis. The total cost line starts at the same point and rises with variable cost.
Treating a fixed cost change as a change in P/V ratio.
Students assume every change in cost affects the ratio.
Fix: A change in fixed cost changes BEP but not the P/V ratio. Only a change in price or variable cost changes the ratio.

Worked examples

Example 1

A company sells a single product at ₹50 per unit. Variable cost is ₹30 per unit and annual fixed cost is ₹2,00,000. Calculate (a) BEP in units and value, (b) sales in units to earn a profit of ₹1,00,000, and (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 = 0.40 or 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 units = (2,00,000 + 1,00,000) ÷ 20 = 15,000 units. Sales value = 15,000 × 50 = ₹7,50,000.
(c) MOS units = 14,000 − 10,000 = 4,000 units. MOS value = 4,000 × 50 = ₹2,00,000.
MOS ratio = 4,000 ÷ 14,000 = 28.57% approximately.

Answer: (a) BEP is 10,000 units or ₹5,00,000. (b) 15,000 units, or ₹7,50,000 of sales, for a profit of ₹1,00,000. (c) Margin of safety is 4,000 units or ₹2,00,000, about 28.57% of actual sales.

Example 2

A firm makes products X and Y in the ratio 3:2 by units. X sells at ₹40 with variable cost ₹30. Y sells at ₹60 with variable cost ₹36. Fixed cost is ₹1,56,000. Find (a) the composite BEP in units and its split between X and Y, (b) the BEP sales value.

Show the solution

Contribution per unit: X = 40 − 30 = ₹10. Y = 60 − 36 = ₹24.
Take a standard mix of 5 units: 3 of X and 2 of Y.
Contribution of the mix = 3 × 10 + 2 × 24 = 30 + 48 = ₹78.
Sales value of the mix = 3 × 40 + 2 × 60 = 120 + 120 = ₹240.
(a) Number of mixes to break even = 1,56,000 ÷ 78 = 2,000 mixes.
BEP units: X = 2,000 × 3 = 6,000 units. Y = 2,000 × 2 = 4,000 units. Total = 10,000 units.
(b) BEP sales value = 2,000 × 240 = ₹4,80,000.
Check: composite P/V ratio = 78 ÷ 240 = 0.325. 1,56,000 ÷ 0.325 = ₹4,80,000.
Split by value: X = 6,000 × 40 = ₹2,40,000. Y = 4,000 × 60 = ₹2,40,000.

Answer: Composite BEP is 10,000 units: 6,000 units of X and 4,000 units of Y. BEP sales value is ₹4,80,000, being ₹2,40,000 each from X and Y.

Exam tips

In MCQs, work out contribution per unit first. Most options differ because of a common slip such as dividing by selling price.
In written answers, show the formula, then the substitution, then the answer. Step marks are given for the working.
For chart questions, state the scale, label both axes, and mark BEP, margin of safety, profit and loss areas. Use graph paper and a ruler.
Always state the assumption of a constant sales mix in multi-product problems. A change in mix changes the composite P/V ratio and the BEP.
If the question gives two years of data, find the P/V ratio from the change in profit and sales, then derive fixed cost. Do not assume fixed cost is given.

Practice questions from Marginal Costing (Management Accounting)

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

How do I calculate break-even point in units and in value?

For units, divide fixed cost by contribution per unit. For value, divide fixed cost by the P/V ratio, or multiply BEP units by selling price. Both give the same answer.

How do I draw a break-even chart?

Put sales on the X-axis and cost and revenue on the Y-axis. Draw the fixed cost line parallel to the X-axis, the total cost line starting at fixed cost, and the sales line from the origin. Where the sales line meets the total cost line is the BEP.

What is the difference between a break-even chart and a profit-volume graph?

A break-even chart shows revenue, fixed cost and total cost lines. A profit-volume graph shows only profit or loss against sales. It starts at a loss equal to fixed cost and cuts the X-axis at the BEP.

How do I solve multi-product break-even problems?

Fix the sales mix and find the composite contribution and sales for one standard mix. Divide fixed cost by that contribution to get the number of mixes at BEP, then split by the mix. The answer holds only while the mix stays constant.