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Break-Even Analysis Entails Calculating and Examining The Margin of Safety For
Break-Even Analysis Entails Calculating and Examining The Margin of Safety For
CEAT – IE Department 1
BREAK-EVEN ANALYSIS 2ND Semester, 2020-21
In the discussion of Break-even point, there are 3 terms that is commonly used.
They are the profit, the revenue and the cost.
The formula for for Profit is…. Profit = Revenue – Cost
In this formula, if the result of the computation is positive or Profit will be
positive, that means that company is gaining a profit. If the answer bears a
negative Profit, then at that point, the company is still losing or the company is
not able to earn yet. However, if the answer is zero, then the company is at
break-even point.
To illustrate: If Profit = +, the company is gaining profit
If Profit = -, the company is losing
If Profit = 0, the company is at break-even point
This time, the revenue is equal to cost.
With regard to cost, there are two (2) kinds of cost that is involved:
Cost = Variable cost + Fixed Cost
Variable cost are the cost of producing the product that varies proportional to the
quantity of production
Fixed cost are cost that must be paid regardless of the quantity produced.
Remember: Profit = Revenue – cost
CEAT – IE Department 2
BREAK-EVEN ANALYSIS 2ND Semester, 2020-21
Costs:
Fixed Cost = 7,500 + 5,000 = 12,500/month
Variable costs = 0.10 + 0.05 + 0.40 = 0.55/page
Cost = 12,500 + 0.55p
Revenue:
Price = 1.0/page
CEAT – IE Department 3
BREAK-EVEN ANALYSIS 2ND Semester, 2020-21
The XYZ corporation manufactures book cases that it sells for P65.00
each. It costs P35,000.00 per year to operate its plant. This sum
includes rent, depreciation charges on equipment and salary payment.
If the cost to produce one bookcase is P50.00, how many cases must
be sold each year for the ABC to avoid taking a loss?
Solution:
CEAT – IE Department 4