Running a profitable construction

company:revisited break-even analysis

by Joon H.Paek
BACKGROUND
• Each project is like a custom item that is built to serve a special
need

• In the past,they have separate branches which had a tendency to

be more decentralized.

• Traditional break-even analysis is used to analyse a each

branches individually

• In this research,break-even analysis is revisited by analysing all

the branches of a corporation as a whole
RESEARCH OBJECTIVES
• To give the reader a basic understanding of traditional break-
even analysis

• To show the reader how the revisited approach to break-even

analysis is used with a company of one or more branches

• To give the reader an approach to solve the problem of the gap

in the break-even points using break-even analysis as a
forecasting tool
APPLICATION
Branch A
• Given that Branch A had a volume of Rs.1,30,29,21,000 with a net
gain of Rs.14,51,24,000 or 11.1% of the volume,overhead cost
equals to Rs.4,26,00,000 and equipment expenses totalling
Rs.14,32,78,000.

• Total cost = Total volume – Net gain

=1,30,29,21,000 -14,51,24,000
= Rs.1,15,77,97,000
• Fixed cost = Overhead cost + equipment cost
= 4,26,00,000 + 14,32,78,000
= Rs.18,58,78,000

• Variable cost = Total cost – Fixed cost

= 1,15,77,97,000– 18,58,78,000
= Rs.97,19,19,000

97,19,19,000
• Variable cost / volume =
1,30,29,21,000
= 0.746 for the year
 Variable cost
• Contribution factor = 1-
Volume

97,19,19,000
=1 -
1,30,29,21,000

= Rs.0.25

Fixed costs
• Breakeven-point =
Contribution factor

18,58,78,000
=
0.25

= Rs. 73,16,70,351
Branch B
Given that Branch B had a volume of Rs.1,08,39,57,000 with a net gain
of Rs.3,71,33,000 or 3.4% of the volume, overhead cost equals to
Rs.4,97,00,000 and equipment expenses totalling Rs.16,07,44,000.

• Total cost = 1,08,39,57,000 - 3,71,33,000

= Rs.1,04,68,24,000
• Fixed cost = 4,97,00,000 + 16,07,44,000

= Rs.21,04,44,000

• Variable cost = 1,04,68,24,000 - 21,04,44,000

= Rs.83,63,80,000

83,63,80,000
• Variable cost / volume =
1,08,39,57,000

= 0.772 for the year

 83,63,80,000
• Contribution factor =1-
1,08,39,57,000

= Rs.0.23

21,04,44,000
• Breakeven-point =
0.23

=Rs.91,49,73,913
COMPARISON AND CONTRAST

Comparison of Business data between Branch A and Branch B

BREAKEVEN FORECAST
Assuming continuation of this trend, it looks as if they will hit Rs.5,60,90,000
for combined overhead in year 10 and equipment expenses as
Rs.15,97,50,000.

CALCULATIONS
• Fixed costs = 5,60,90,000 +15,97,50,000
= Rs.21,58,40,000
• Variable cost / volume = 0.822
• Contribution factor = 0.178
215840000
• Break-Even point =
0.178

= Rs.1,20,70,00,000
THANK YOU