Chapter 6.

Break –Even Point Analysis 

Break-Even Point (BEP)
The common point between the total revenue and the total cost is called the breakeven
point. At this point, the total revenue equals to the total cost. The company has no
profit but has no loss.
Total Revenue, Total Cost and Profit Functions
The total revenue (TR) is obtained by finding the product of the selling price per unit by
the number of units sold. Total cost (TC) is obtained by finding the sum of the fixed
cost (FC) and variable cost (VC). Fixed cost is constant while the variable cost represent
the cost of production per unit. The following formulas should be remembered:
TR = selling price per unit times the number of units sold.
TC = FC + VC, (where VC = cost per unit times the number of units)
Profit = TR – TC
At breakeven point, TR = TC or TR – TC = 0 or Profit = 0
Break-Even Analysis: Linear Function
Example:
A firm sells its product at ₱6 per unit. The product has a variable cost of ₱3 per unit and
the Company’s fixed cost is ₱9,000. Determine each of the following
1. TR, TC and profit functions
2. Sales volume when profit is₱9,000
3. Profit when sales are 600 units
4. The break-even quantity and revenue
5. The mount by which the variable cost per unit as to be decreased or increased for
the firm to breakeven at 2,000 units. Assume that the selling price and the fixed cost
remain constant.
6. The new selling price per unit in order to break even at 300 units assuming the FC
and VC remain constant.
7. Number of units to sell to cover the fixed cost.
Answers:
1. Let x = number of units to sell
TR = 6x
Thus, TC = 3x + 9000 since VC = 3x (VC = cost per unit times the number of units)
Profit = TR – TC
= 6x – (3x + 9000)
Therefore, P = 3x – 9000
2. If P = 9000, in p = 3x – 9000
9000 = 3x – 9000
X = 6000 units
3. If x = 600 units
P = 3x – 9000
P = 3(600) – 9000
= 1800 – 9000
P = -7200 (loss)
4. At break even:
TR=TC
6x = 3x + 9000
x = 3000 BEP quantity
to find the revenue:
TR = 6x
= 6(3000) = ₱18,000 BEP revenue
5. Let y = the new VC per unit. To break even at 2000 units, since VC = cost per unit
times the number of units sold,
New VC = 2000y; TC = VC + FC
Original TC = 3x + 9000
New TC = 2000y + 9000
At BEP : TR = TC
6(2000) = 2000y + 9000
y= 1.50 new variable cost per unit.
Since old VC is ₱3/unit, decrease therefore is ₱1.50 per unit.
6. Let y = new selling price per unit
Number of units is 300.
New TR = 300y; TC = 3x + 9000
y = ₱33 new selling price to break even at 300 per units
(checking is left to the student)
7. To cover the fixed cost, TR = FC
6x = 9000
x = 1500 units to sell to cover the fixed cost.

Risk at hand if the price per unit is decreased by a certain percent of the volume of
sale.
In our preceding discussion, yhe company will make profit only between the two break-
even points.
It is indeed important to study the extent of prospective profit before proceeding to
decrease the price.
Questions like "how much profit" or what is the possible maximum profit?" must be
asked.
Given a non-linear functions, we can easily find its maximum or minimum point by the
use of derivatives.

Basic Rules for Derivatives.

1. Constant Rule:
The derivative of a constant function is 0. In symbols, if c is a constant, then
y=0
d (c) / dx = 0
or y^1 = 0
2. The derivative of a variable with respect to itself is 1. In symbols, if x is a
variable,then 
y=x
y^1= 1
3. Power Rule: 
If n is any real number, then
d (x^n)/ dx = nx^(n-1)
4. The constant multiple Rule:
If k is any real number constant and f is a differentiable function of x, then
d [k •f(x)] / dx = k•d[f(x)] / dx
5. The sum and difference rules:
If f and g are two differentiable functions at x, then
d[f(x) ± g(x)]/ dx = d[f(x)] / dx ± d[g(x)]/ dx.
Reference: Canlapan, R.B. Basic Calculus. Diwa Learning Systems Inc. Makati City
Philippines. 2017

Product and Quotient Rules of Differentiation

If f and g are two differentiable functions of x, then the following rules should be
followed:
6. Product Rule
d[f(x)•g(x)]/dx = f(x) g^1(x) + g(x) f^1(x)
( which means the derivative of the product of two functions is equal to the first times
the derivative of the second plus second times the derivative of the first)
7. Quotient Rule:
d f(x)/ dx g(x) = g(x) f^1(x) - f(x) g^1 (x) / [g(x)]^2.
Meaning The derivative of a quotient of two functions is equal to the denominator times
the derivative of the numerator, minus the numerator times the derivatives of the
denominator, all divided by the square of the denominator.

Find the first derivative of the following:

1. y = 500
2. y = 2x
3. y = 3x^5
4. y = 2x^8 + 3x^3 + x + 2
5. y = 5x^2 - 2x^4 + 10x - 68
Solution:
1. since the given is a constant thus,
y^1 = 0
2. y = 2x
y^1 = 2
3. y = 3x^5
y^1 = 3•5 x^ 5-1
y^1= 15x^4
4. y = 2x^8 + 3x^3 + x + 2
y^1 = 2•8x^ 8-1 + 3•3x^2-1 + 1 +0
y^1 = 16x^7+9x+1
5. y = 5x^2 - 2x^4 + 10x - 68
y^1= 5•2x^2-1 - 2•4x^4-1 + 10 -0
y^ 1 =10x - 8x^3 +10
Lesson 10.
Finding the Critical Points of Non-Linear Functions
There are two critical points:
a. Maxima or maximum point
b. Minima or Minimum point
Here are the steps in Locating Critical Points
1. Find the derivative of the function dy/dx or y'( read as y-prime)
2. Set the first derivative to zero and solve for x.
3. Substitute this value of x in the original function and solve for y. These values of x
and y are the coordinates in the maxima or minima.
4. Test whether the point is maxima or minima by finding the second derivative (y" read
as y- double prime). If the second derivative is negative, the point is maxima. If the
second derivative is positive, the point is minima.

HB1. Locate and classify the critical point of y= -4x^2 + 40x - 10

Solution:
y= -4x^2 +40x -10
y` = -8x +40 - -> (finding the 1st derivative)
-8x + 40 = 0 --> setting the 1st derivative to zero and solve for x.
Thus,
-8x = -40
x=5
Now, substituting x = 5 in the original equation
y= -4x^2 +40x -10
y = -4(5)^2 + 40(5) - 10
y = -4(25) +200-10
y = -100 + 190
y = 90 
Thus the critical point is (5,90)
Now,
Test whether the point is maxima or minima:
y' = -8x +40
y'' = -8
since y" is negative, we can conclude that the critical point (5,90) is a maximum point.
Did you understand?
HB2. 
Locate the critical points and classify them into maxima or minima:
y = 4x^3 + 6x^2 - 24x + 14
Solution.
Step 1. Find the first derivative.
y = 4x^3 + 6x^2 - 24x + 14
y`= 12x^2 + 12x -24
Step 2. Set the 1st derivative to zero.
y`= 12x^2 + 12x -24
0 = 12x^2 + 12x -24
now,
12x^2 + 12x -24 = 0
*Just simplify if applicable
Thus,
x^2 + x -2 = 0 ,( dividing by 12 kaya ganyan)
(x + 2)(x - 1) = 0 ,( factoring)
x+2=0
x - 1 = 0 , (setting each factor to zero)
x+2=0
x = -2
**let say x sub 1 equals -2.
x-1=0
x = 1.
*** let say x sub 2 equals 1.
Step 3. Solving for Y ( para makuha yung coordinates in the maxima or minima)
At x = -2
y = 4x^3 + 6x^2 - 24x + 14
y = 4(-2)^3 + 6(-2)^2 -24(-2) +14
y = 4(-8) + 6(4) +48 + 14
y = -32+24+48+14
y = 54 
Critical point: (-2, 54)
At x = 1 
y = 4(1)^3 + 6(1)^2 - 24(1) + 14
y = 4 +6-24+14
y=0
Thus, critical point ( 1,0)
Step 4. Test whether the point is maxima or minima:
y = 4x^3 + 6x^2 - 24x + 14
y`= 12x^2 + 12x -24 ( 1st derivative)
y" = 24x + 12
At x = -2
y" = 24x + 12 
y" = 24(-2) + 12
y'' = -48 + 12 = - 36
Therefore , the point (-2,54) is maximum.
At x = 1
y" = 24(1) + 12
y" = 36 
Therefore , the point (1,0) is minimum.
Did you get it ?

Application of Maxima and Minima in Business

HB 3. The profit function of a manufacturer is given as P = - 0.1x^2 +5x -40 where P
represents the profit, while x is the number of units to sell. Find the maximum profit.
Solution: 
P = - 0.1x^2 +5x -40
P' = -0.2x + 5
- 0.2x + 5 = 0
-0.2x= -5
x = 25 
Thus the number of units for maximum profit is 25.
To find the maximum profit,substitute 25 in x and find P.
P = - 0.1x^2 +5x -40
P = - 0.1(25)^2 + 5(25) - 40
P = Php. 22. 50
Thus the maximum profit is Php. 22. 50
Twenty two pesos and fifty centavos.
Did you understand?
What question(s) do you have in your mind?

HB4. A factory estimated that its equation for cost is represented by the function C =
0.02x^2 - 8x + 1100 where C is the cost and x is the number of units to produce,
a. Find the number of units for minimum cost.
b. Find the minimum cost.
Solution:
a. C = 0.02x^2 - 8x + 1100
c' = 0.04x - 8
0.04x - 8 = 0
0.04x = 8
x = 200
Thus, the number of units for minimum cost is 200.
b. C = 0.02x^2 - 8x + 1100
C = 0.02(200)^2 - 8x + 1100
C = Php. 300.00
Thus, the minimum cost is 300 pesos.
Exercise 2.
Find the first and second derivative of y with respect to x.
1. y= 2x^3 - 5x^2 + 2x -30
2. y = (0.5)x^-2 - (1/3)x
3. y = x^5 - 4x^2 + 2x - 10
4. y = 2x^5 (x^2 - 3)
5 . y = x^5 ( x - 3 ) ^3

Exercise 3.
A. In each of the following equations, P stands for profit and x is the units to sell.
Determine the following:
a. The units to sell for maximum profit
b. The maximum profit.
1. P = - 0.09x^2 + 2.4x - 6
2. P = - 0.1x^2 + 4x -10
3. P = -0.5x^2 + 40x -740
4. P = -0.3x^2 + 36x -1040
5. P = -0.01x^2 + 2x - 60
B. In each of the following equations, C stands for cost in peso and x stands for the
number of units to produce. Determine the following:
a. The units to produce for minimum cost.
b. The minimum cost.
6. C = x^2 - 16x +74
7. C = x^2 -40x + 405
8. C = x^2 -30x +235
9. C = 0.01x^2 - 10x +2520
10. C = 0.16x^2 - 20x +675
HB 5. A factory sells a particular product at a price (20 - 0.1x ) pesos per unit.
The variable cost per unit is P 9.00. Fixed cost of the factory is P. 1000.
a. Write the TR, TC and profit functions.
b. Find the units to produce to break even.
c. Find the break-even revenue.
d. Interpret the meaning of the two break-even points.
e. Find the units to produce for a maximum profit.
f. Find the maximum profit.
g. Find the profit at a sale of 500 units.
h. Will there be a profit if there are remaining 90 units?
What remedy can you recommend?
i. Suppose that the selling price per unit becomes (30 - 0.01x) pesos , find the new maximum profit
(assuming that VC and FC are constant)