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How to calculate BEP for Service sector like health services and financial services where per unit variable cost is difficult to calculate.
Break Even Points means a point there is no loss or no profit to the organisation. Sales = Variable cost + Fixed cost
Margin of safety indicates the amount of sales that are above the BEP Ex - Sales- BEP Sales
Margin of Safety- Represents the difference between sales at a given activity nd sales at Break even point (BEP is the point of sale where company makes neither profit nor loss). Consequently it indicates the extent to which a fall in demand could be absorbed before the company begins to sustain losses. The margin of safety is expressed as percentage of sale. The validity of safety always depends on the accuracy of cost estimates. The wide margin of safety is advantageous for the company. Margin of safety depends upon the level of fixed cost, rate of contribution and level of sales.
Break-even point- Is a point where total costs (expenses) and total sales (revenue) are equal. Break-even point can be described as a point where there is no net profit or loss. The firm just “breaks even.” Any company which wants to make abnormal profit, desires to have a break-even point.
BEP: IS THE VOLUME OF SALES THAT THE OPREATING PROFIT EQUAL ZERO , BEP CAN CALCULATE BY UNIT SALES OR VALUE OF SALES
MARGIN OF SAFTY : IS THE VOLUME OR VALUE OF SALES THAT EXCEED BEP POINT .
