Factor to Determine the Breakeven Point-Free-Samples for Students

Question: Determine break even in the Service Industry describe how the service Industry projects its profit and loss. How does it work out the income it needs to make? Answer: Breakeven refers of the point of sales where all the cost has been recovered without any profit. So it can be said that breakeven it the point of sales quantity (in units) or revenue (amount) that is essential to need the variable and fixed expenses of the company. Any quantity below this point will lead to loss. The profit at breakeven sales is always zero (Horngren, 2009). The formula to calculate the breakeven is: Fixed Cost/Contribution margin ratio So it is essential to have information on sales revenue, variable cost and fixed cost incurred in any company. There are different categories of revenue and cost associated according to the type of industry. So it can be said that profit and loss is the deciding factor to determine the breakeven point. In service industry there are revenue generated through sales of service supplies as it is not in case of manufacturing industries where the sales of goods is the deciding factor. So the main items of the sales revenue in case of service industry are gross amount received to provide such services and any other incomes as a part of business activities (Coombs, Hobbs and Jenkins, 2005). Cost of goods sold or expenses can be divided into two parts variable and fixed. Variable expenses can be raw material used to render such services, labour implied to provide such services, shipping cost, and sales commission. Fixed expenses can be salaries paid to employees, rent, telephone expenses and utilities expenses. So breakeven for service industry will be same as above formula but it is beneficial to calculate the breakeven in amount not in number in number of services rendered. References Coombs, H., Hobbs, D. and Jenkins, E. 2005. Management Accounting: Principles and Applications. SAGE. Horngren, C. T. 2009. Cost Accounting: A Managerial Emphasis. Pearson Education India.