In other words, contribution margin is equal to fixed expenses. As per the abovemodel, the contribution margin must be equivalent to fixed expenses ofRs5,740,000 to calculate the breakeven point with the following formula.Volume in units at breakeven=¿expensesContribution margin perunit=Rs5,740,000/Rs2.5=2,296,000 unitsTotal revenues at breakeven=¿expensesContribution marginratio=Rs5,740,000/35.7143%=Rs16,071,993.57Also, the volume in units at breakeven can be calculated with thefollowing formula.Volume in units at breakeven=Total revenuesrequiredRevenue per unit=Rs16,071,993.57/Rs72,296,000 unitsBasically, the breakeven analysis is usually illustrated in a graphical format. Byusing the calculation of breakeven in terms of sales volume or total revenues, we16 | P a g e
thus can construct a breakeven chart. Following is the breakeven graph (Exhibit 2)which presents and interprets the important relationship for Fly Ash Brick Project.Exhibit 2To construct a breakeven chart using the given information, units are plotted onhorizontal axis and total Indian Rupees on the vertical axis. The total cost line isstructured by combining the fixed cost and variable cost of Rs4.5 per unit.From Exhibit 2, the grey line of total revenue interests with the orange line of totalcost at the breakeven point of (2,296,000 , 16,071,993.57). Put simply, Sharmaneeds to sell 2,296,000 units of Fly Ash Bricks in order to have neither profit norloss (breakeven).The fixed cost seems to to be a horizontal line at an amount of Rs1,140,000 as thefixed cost is similar to any production volume, meaning that the total fixed cost17 | P a g e
remain unchanged as level of activity changes. For the total revenue function, thetotal revenue will be zero if zero units is sold. Therefore, the total revenue line isreflecting by (0,0) and will pass through the break-even point. While, for total cost,when zero units is produced, the total cost is equivalent to the fixed cost. So thetotal cost line will start at the fixed cost and pass through the break-even point.There are the area between the two lines (TR and TC) is marked as “loss area” and“profit area.” Beginning with an amount equal to total fixed expenses ofRs5,740,000 at a sales volume of 0 unit until the breakeven is achieved, the regionconstitutes losses, as the total cost seems higher than the total revenue. On theother hand, the total revenue is greater than the total cost after the breakeven, it canbe said that the company is making profit.The breakeven point is likely to be useful to managers while doing a business plan.This is because it expresses a minimum revenue target, and easy for managers topinpoint the amount of sales (or revenues) as regards with the variable and fixedexpenses. For instance, the manager is looking at the breakeven and saying that thecompany cannot sell that many units and need to relook at the way that can works.