ABM 11 QUARTER 1 Week 8:

BUSINESS
MATHEMATICS BREAK-EVEN ANALYSIS

NAME: ___________________________________________ GR & SEC: ___________________________

Competencies:
The learner defines break-even, illustrates how to determine the break-even point, and solves
problems involving buying and selling products. ABM_BM11BS-Ij-8-9

To the Learners:
Before starting the module, I want you to set aside other tasks that will disturb you while enjoying
the lessons. Read the simple instructions below to successfully enjoy the objectives of this kit. Have fun!
1. Follow carefully all the contents and instructions indicated in every page of this module.
2. Writing enhances learning. Keep this in mind and take note of the important concepts in your
notebook.
3. Perform all the provided activities in the module.
4. Let your facilitator/guardian assess your answers using the answer key card.
5. Analyze the post-test and apply what you have learned.
6. Enjoy studying!

Expectations

This module is designed to help you demonstrate understanding of the various 𝑐𝑜𝑠𝑡𝑠 and other
terminologies associated in a business, define and illustrate how to determine the 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 point, use
break-even analysis to interpret the break-even graph, and determine the stage at which a business starts
to become profitable.
After going through this module, you are expected to:
1. Analyze and solve problems involving 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 point;
2. Verify the break-even point using a graphing software;
3. Determine the minimum level of production required to cover the various costs associated with
product manufacture; and
4. Use critical thinking skills to establish wise business decisions in matters related to business
operations.

Pre-test

Read each item carefully, solve if necessary, and then choose the letter of the correct answer. Write
your answers on a separate sheet of paper.
1. Each of the following are variable costs EXCEPT
A. raw materials C. energy and other utilities
B. manufacturing supplies D. lease and office space rental
2. Rafa is a pastry shop owner. Which of the following costs is considered a fixed cost for Rafa?
A. confectioner sugar C. hourly wages of staff
B. supervisor’s salary D. electricity cost of the shop
3. In a break-even graph, the break-even point is the intersection of which two lines?
A. total cost and variable cost lines C. total revenue and total cost lines
B. variable cost and the fixed cost lines D. total revenue and variable cost lines

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4. Which of the following descriptions best explains the break-even point?
A. it is the situation where a business neither makes a profit nor incurs a loss
B. it is the situation where a business makes a profit because of sound financial management
C. it is the point in which the sum of the variable costs and the fixed costs is taken in order to
find the total cost
D. it is the point in which the difference of the total sales and the total cost is taken in order to
determine the profit
5. A company’s financial study shows that the total cost is larger than the total revenue. Which of the
following conclusions can be made?
A. the company is breaking even C. the company is incurring a loss
B. the company is making a profit D. the company will be closing soon
6. An electronics shop sold 350 units of its product at ₱140 each. If the fixed and variable costs were
₱54 000 and ₱35 000 respectively, which of the following financial situations happened to the shop?
A. The shop incurred a ₱9 000 loss C. The shop made a ₱14 000 profit
B. The shop incurred a ₱40 000 loss D. The shop made a ₱40 000 profit
7. Poker Face, a face mask manufacturer, is expecting to produce 7 000 pieces of face masks next month
that will be sold for ₱15 each. A piece of face mask costs ₱9 to produce and the fixed cost will be ₱30 000.
What is the break-even quantity for the next month?
A. 1 667 pieces B. 4 000 pieces C. 5 000 pieces D. 8 333 pieces
8. Which of the following costs are expenses that a business is obligated to pay no matter how much or
how little of the product or service is produced or manufactured?
A. fixed cost B. variable cost C. total cost D. production cost
9. A store is selling a product at ₱10 per piece. The overhead cost is ₱40 000 while the cost of producing
a piece is ₱6. How many pieces should be produced and sold to break even?
A. 8 000 B. 10 000 C. 12 000 D. 14 000
10. Shubaka, a shoe store in Marikina, sells kids’ shoes for ₱450. Each pair costs ₱200 to produce. The
fixed costs are ₱750 000. If the store’s goal is to have a profit of ₱250 000, how many pairs have to be sold to
achieve this goal?
A. 1 000 B. 2 000 C. 3 000 D. 4 000

Looking Back at your Lesson

From your previous lessons, you have revisited, relearned, and understood how a business enterprise
makes or loses money – how a profit is gained or how a loss is incurred. You have also discussed several
ways to increase the profitability of a business, as well as ways to avoid losses.
Profit is defined as the positive financial gain that a business makes after all the expenses have been
subtracted. Its formula is quite simple:
𝑷𝒓𝒐𝒇𝒊𝒕 = 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔 (𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆) – 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕𝒔
A general rule of thumb in business management is to always make sure that the total revenue
generated from a product or service is greater than the total expenses. This is because a business will suffer
a loss if the total costs become greater than the total sales. Loss is calculated using the formula
𝑳𝒐𝒔𝒔 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕𝒔 − 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔 (𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆)
If you are a business owner, the very least that you want to happen to your business is to break-
even. In this lesson, you will delve deep into the idea of breaking even, that by doing a break-even analysis,
you will understand the relationship between the associated various costs, as well as profits at different
stages of your business. Break-even analysis places a heavy emphasis on the break-even point. This point
is where the business receives neither a profit nor a loss, when the total sales is equal to the total money
spent in producing the items for sale.

Introduction of the Topic

Lesson: Break-Even Analysis

The Covid-19 pandemic has created a new and unfamiliar situation for all of us. Suddenly, we
found ourselves living in the 𝑁𝑒𝑤 𝑁𝑜𝑟𝑚𝑎𝑙 – a new way of doing things and dealing with our colleagues,
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friends, and loved ones. In other words, the pandemic has brought about a new way of life. It has
affected almost all sectors of life you could imagine; the education and business sectors, just to name
a few.
While most Filipinos are reeling in the effects of the pandemic and are having difficulties coping,
some of our countrymen see the situation as an opportunity to become online entrepreneurs and
business owners. Their enterprising skills have, all of a sudden, been tapped and gone into perpetual
motion.
Nowadays, we see more and more Filipinos use various social media platforms to engage in the
online selling business. While many of us find it a solution to survive these trying times, having a
business, online or otherwise, is not easy and not for everyone. One needs to have a thorough
understanding of the basics of managing a business in order to keep it thriving. He must analyze
whether a business is making a profit or is incurring a loss. He needs to learn how to do a Break-Even
Analysis.
What is a Break-Even Analysis?
A 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑎𝑛𝑎𝑙𝑦𝑠𝑖𝑠 is a technique used by business owners in analyzing at which point is the
company, a service, or a product will begin to make a profit. Basically, it is a method of calculating and
determining the number of products or services a company should sell in order to cover its costs, particularly
fixed costs.
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 is a situation in which a business is neither making money (gains profit) nor losing
money (incurs loss) – the producer has earned revenues just enough to cover all the expenses but did not
make any profit. 𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑎𝑛𝑎𝑙𝑦𝑠𝑖𝑠 is useful in studying the relationship among these three components
– variable costs, fixed costs, and revenue.
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 (𝐵𝐸𝑃) is the price point at which the revenue (sales) is equal to the costs, which
means that the business generates zero profit and zero loss.

Components of a Break-Even Analysis

 Production Costs. 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡𝑠 refer to the costs and expenses associated in manufacturing a
product or providing a service to customers. There are two types of production costs, namely
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 and 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠.
A. Fixed Costs. 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠, also called 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑐𝑜𝑠𝑡𝑠, are expenses incurred and are obligated to
be paid by a company no matter how much or how little of the product or service is manufactured
or produced. These expenses do not depend on the level of production. The most common examples
of fixed costs include salaries, office space lease and rent payments, labor costs, insurance, taxes,
interest on loans, etc.
B. Variable Costs. 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 are expenses that are in direct relation to the production volume.
These expenses depend on the level of production of products and services. When production
volume goes up, the variable costs will increase. Likewise, if the volume goes down, the variable costs
also goes down. The most common examples of variable costs include the cost of raw material,
manufacturing supplies, utilities, packaging cost, fuel, and other costs that are directly related to
the production.
C. Total Costs. 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 is the sum of the total fixed costs and the total variable costs.

The Break-Even Graph

The break-even graph is a graph
that shows the relationship among the
various components of a break-even
analysis – the 𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒, 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡,
and 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 functions. It also shows
the point at which the total revenue
line intersects the total cost line. This is
called the 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡, which indicates
that a business is neither making a profit
nor incurring a loss. The figure below is a
typical example of a break-even graph.

Figure 1. The Break-Even Graph

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Calculation of Break-Even Analysis
Example 1. In manufacturing wooden armchairs for public schools, JLC Furniture lists the following
operating costs per day:
Variable cost per unit = ₱350 and Fixed cost = ₱10 800
(a) Set up the equation for the following functions: 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 and 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛
(b) What is the cost of producing 50 armchairs a day?
(c) If each armchair is to be sold at ₱1 000, determine the 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 and 𝑝𝑟𝑜𝑓𝑖𝑡 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛𝑠. How much profit is
gained if 100 armchairs are sold?
(d) How many armchairs must be produced and sold at ₱800 in order to break-even?
𝑺𝒐𝒍𝒖𝒕𝒊𝒐𝒏.
(a) Given: variable costs per unit, 𝒎 = ₱𝟑𝟓𝟎 and Fixed costs, 𝒃 = ₱𝟏𝟎 𝟖𝟎𝟎
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛
Using 𝒚 = 𝑭𝑪, you have Using 𝒚𝒄 = 𝒎𝒙 + 𝒃, you have
𝒚 = 𝟏𝟎 𝟖𝟎𝟎 𝒚𝒄 = 𝟑𝟓𝟎𝒙 + 𝟏𝟎 𝟖𝟎𝟎

(b) Given: number of armchairs to be produced, 𝒙 = 𝟓𝟎

The cost of producing 50 armchairs a day can be obtained using the total cost function, 𝒚𝒄 =
𝒎𝒙 + 𝒃, with 𝒎 = ₱350 and 𝒃 = ₱10 800. Substituting the values in the formula, you have
𝒚𝒄 = 𝒎𝒙 + 𝒃
= 𝟑𝟓𝟎(𝟓𝟎) + 𝟏𝟎 𝟖𝟎𝟎
𝒚𝒄 = 𝟐𝟖 𝟑𝟎𝟎
Therefore, the cost of producing 50 armchairs a day is ₱28 300.

(c) Given: price per unit, 𝑺 = ₱𝟏 𝟎𝟎𝟎

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛
Using 𝒚𝒓 = 𝑺𝒙 , you will get Using 𝑷 = 𝒚𝒓 − 𝒚𝒄 , you will get
𝒚𝒓 = 𝟏 𝟎𝟎𝟎𝒙 𝑷 = 𝟏 𝟎𝟎𝟎𝒙 − (𝟑𝟓𝟎𝒙 + 𝟏𝟎, 𝟖𝟎𝟎)
𝑷 = 𝟔𝟓𝟎𝒙 − 𝟏𝟎 𝟖𝟎𝟎

If the number of units sold, 𝑥 = 100, the profit gained can be solved using the profit function
𝑷 = 𝟔𝟓𝟎𝒙 − 𝟏𝟎 𝟖𝟎𝟎. Substituting the values in the formula, you have
𝑷 = 𝟔𝟓𝟎𝒙 − 𝟏𝟎 𝟖𝟎𝟎
= 650(100) − 10 800
𝑷 = 𝟓𝟒 𝟐𝟎𝟎
Therefore, when 100 armchairs are sold, the profit gained is ₱54 200.

(d) Given: selling price per unit, 𝑺 = ₱𝟖𝟎𝟎

In order to break-even, you need to remember that the total revenue must be equal to the total
cost, that is,
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃. Substituting the values, you have
800𝑥 = 350𝑥 + 10 800
450𝑥 = 10 800 Solving for 𝑥, you will obtain
𝒙 = 𝟐𝟒
Therefore, to break-even, the number of armchairs that must be produced and sold is 24.

Example 2. A young Filipino entrepreneur manufactures and sells home decors made from locally grown
bamboos in Pangasinan. Each home décor sells for ₱350 while the variable cost in producing one unit is
₱160.
(a) Determine the revenue if 425 units of home decors were sold
(b) Find the total cost when the fixed cost in producing 425 units is ₱42 000
(c) Find the profit made in selling 425 units [Use your answers in parts (a) and (b)]
(d) Determine the break-even point when the fixed costs amount to ₱38 000
(e) Using a graphing software verify the break-even graph in part (d)

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(f) What is the minimum number of decors that must be sold for the young entrepreneur to learn that his
business is starting to make a profit?
𝑺𝒐𝒍𝒖𝒕𝒊𝒐𝒏.
Given: unit selling price, 𝑺 = ₱𝟑𝟓𝟎
variable cost, 𝒎 = ₱𝟏𝟔𝟎
(a) Required: revenue, 𝑦𝑟 = ? if the number of home decors sold, 𝑥 = 425

The revenue, 𝑦𝑟 is obtained by selling the 425 units of home decors at ₱350 each. Using
the formula
𝒚𝒓 = 𝑺𝒙, you will get
𝒚𝒓 = 350(425) = 𝟏𝟒𝟖 𝟕𝟓𝟎
Therefore, the revenue in selling 425 decors is ₱148 750.

(b) Required: total cost, 𝑦𝑐 = ? if the fixed cost, 𝑏 = ₱42 000 and 𝑥 = 425

The total cost, 𝑦𝑐 , can be found using the formula

𝒚𝒄 = 𝒎𝒙 + 𝒃. Substituting the values, you have
= 160(425) + 42 000
𝒚𝒄 = 𝟏𝟏𝟎 𝟎𝟎𝟎
Therefore, the total cost is ₱110 000.

(c) Required: profit, 𝑃 = ? in selling 𝑥 = 425 units

The profit, 𝑃 can be made if the revenue, 𝑦𝑟 is greater than the total cost, 𝑦𝑐 . It can be
found using the formula 𝑷 = 𝒚𝒓 − 𝒚𝒄 . Substituting the answers from parts (a) and (b), you
will have
𝑷 = 148 750 − 110 000 = 𝟑𝟖 𝟕𝟓𝟎
Therefore, the profit made in selling 425 units is ₱38 750.

(d) Required: break-even point, (𝑥, 𝑦) ⇒ (𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦, 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑟𝑖𝑐𝑒) = ?
if the fixed cost, 𝑏 = 38 000
The break-even quantity, 𝑥, is the number of decors that must be sold in order to break-even. To find
the break-even quantity, you need to remember that the total revenue must be equal to the total cost,
that is,
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃. Substituting the values, you have
350𝑥 = 160𝑥 + 38 000
190𝑥 = 38 000 Solving for 𝑥, you will get
𝒙 = 𝟐𝟎𝟎
The break-even price, 𝑦, is the total revenue generated by selling 200 decors (the break-even quantity) at
₱350 each. Hence, using
𝒚𝒓 = 𝑺𝒙, you will get
𝒚𝒓 = 350(200) = 𝟕𝟎 𝟎𝟎𝟎
Therefore, the break-even point, BEP is (200, 70 000) or (200, ₱70 000).

(e) Required: The graphical representation of the Break-even

point and the region where profit and loss are projected.
Using an online or offline graphing tools like Desmos
and Equatio among others can intuitively provide you
the necessary graphical representation of the functions
earlier found in (a) and (b). All you need to do is to encode
the provided functions to the input section of the graphing
tools and it will instantly provide you the necessary
graphical representation. Note that the intersection of
the Total Cost function and the Revenue function is the
Break-Even Point shown in the right that verifies your
calculations made in (d). Similarly, graphical representation
can also be made using MS Excel.

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(f) Required: the minimum number of decors that must be sold to learn that the business starts to make a
profit
𝑺𝒐𝒍𝒖𝒕𝒊𝒐𝒏.

The graph shows that the break-even point is (200, 70 000) − the break-even quantity is 200. This means
that when more than 200 units are sold, the business starts to make a profit. Therefore, the minimum
of decors that must be sold for the young entrepreneur to learn that his business is making a profit is
𝟐𝟎𝟏.

Example 3. Apex Manufacturing Company sells tempered glass at a price of ₱80 each. The variable costs to
manufacture this product are ₱35 per unit. Last year, the fixed costs amounted to ₱76 500. Because of the
effects of the COVID-19 pandemic in the financial stability of the company this year, the management has
decided to implement a cost-reduction scheme for next year. The plan is to reduce the variable costs to ₱30
per unit and the fixed costs to ₱60 000.
(a) What was the break-even point last year?
(b) How many units must be sold next year to break-even?
(c) How many units must be sold next year to gain a profit that is 20% of the total sales?
𝑺𝒐𝒍𝒖𝒕𝒊𝒐𝒏.
Given: Last year Next year
selling price per unit, 𝑺 ₱80 ₱80
fixed costs, 𝒃 ₱76 500 ₱60 000
variable costs per unit, 𝒎 ₱35 ₱30

(a) Required: last year’s break-even point, that is, (𝑥, 𝑦) = ?

The break-even quantity, 𝑥, is the number of tempered glasses that must be sold in order to
break-even. To find the break-even quantity last year, you need to remember that the total
revenue must be equal to the total cost, that is,
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃. Substituting the values for last year, you have
80𝑥 = 35𝑥 + 76 500
45𝑥 = 76 500 Solving for 𝑥, you will get
𝒙 = 𝟏 𝟕𝟎𝟎
Last year, the break-even price, 𝑦, is the total revenue generated by selling 1 700 tempered glasses
(the break-even quantity) at ₱80 each. Hence, using
𝒚𝒓 = 𝑺𝒙 you will get
𝒚𝒓 = 80(1 700) = 𝟏𝟑𝟔 𝟎𝟎𝟎
Therefore, the break-even point last year is (1 700, 136 000) or (1 700, ₱136 000).

(b) Required: number of tempered glasses that must be sold next year to break-even, that is, break-even
quantity, 𝑥 = ?

In order to find the break-even quantity for next year, you need to remember that next
year’s total revenue must be equal to the total cost, that is,
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃. Substituting the values for the next year, you have
80𝑥 = 30𝑥 + 60 000
50𝑥 = 60 000 Solving for 𝑥, you will obtain
𝒙 = 𝟏 𝟐𝟎𝟎
Therefore, the break-even quantity for next year is 1 200.

(c) Required: number of tempered glasses that must be sold next year to gain a profit that is 20% of total
sales, that is, 𝑥 = ?

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BUSINESS MATHEMATICS QUARTER 1 WEEK 8 P a g e 6 | 10
 Take note that the profit, 𝑃 is 20% of the total sales (total revenue), 𝑦𝑟 . Algebraically,
this can be represented as
𝑷 = 𝟎. 𝟐𝒚𝒓 .
Since the profit equation is given by 𝑷 = 𝒚𝒓 − 𝒚𝒄 , where 𝒚𝒓 = 𝑺𝒙 and 𝒚𝒄 = 𝒎𝒙 + 𝒃,
and equating these two equations together, you will have
𝟎. 𝟐𝒚𝒓 = 𝒚𝒓 − 𝒚𝒄 . This will yield
𝟎. 𝟖𝒚𝒓 = 𝒚𝒄 .
Substituting the given values for the next year, you will obtain
𝟎. 𝟖𝑺𝒙 = 𝒎𝒙 + 𝒃
0.8(80)𝑥 = 30𝑥 + 60 000
64𝑥 = 30𝑥 + 60 000
34𝑥 = 60 000 Solving for 𝑥, you will get
𝒙 = 1 764.71 ≈ 𝟏 𝟕𝟔𝟓
Therefore, to gain a profit that is 20% of the total sales for next year, the company
must be able to sell 1 765 tempered glasses.

Example 4. A local electronics shop in Quiapo, Manila manufactures and sells portable Bluetooth speakers
at ₱1 250 each. Its annual fixed costs amount to ₱240 000, while its variable costs account for 40% of the unit
selling price.
(a) Determine the fixed cost, total cost, and total revenue functions
(b) How many speakers must be sold to cover the fixed costs?
(c) Find the break-even point
(d) Using a graphing software or tools verify your results in (c) the break-even graph.
(e) If the production level is at 300 units, is there a profit or a loss? How much is this profit/loss?
𝑺𝒐𝒍𝒖𝒕𝒊𝒐𝒏.
Given: selling price per unit, 𝑺 = ₱𝟏 𝟐𝟓𝟎 fixed costs, 𝒃 = ₱𝟐𝟒𝟎 𝟎𝟎𝟎
variable cost per unit, 𝒎 = 𝟒𝟎% of selling price 𝒎 = 40% of ₱1 250 = (0.4)(1 250) = ₱𝟓𝟎𝟎
(a) Required: fixed cost, total cost, and total revenue functions

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛

Using 𝒚 = 𝑭𝑪, you have Using 𝒚𝒄 = 𝒎𝒙 + 𝒃, you have Using 𝒚𝒓 = 𝑺𝒙 , you have
𝒚 = 𝟐𝟒𝟎 𝟎𝟎𝟎 𝒚𝒄 = 𝟓𝟎𝟎𝒙 + 𝟐𝟒𝟎 𝟎𝟎𝟎 𝒚𝒓 = 𝟏 𝟐𝟓𝟎𝒙

(b) Required: number of speakers, 𝑥 that must be sold to cover the fixed costs
To cover the fixed costs, the total revenue must be equal to the fixed costs, that is, 𝒚𝒓 = 𝒃 .
Substituting the values, you have
𝒚𝒓 = 𝒃
𝑺𝒙 = 𝒃
1 250𝑥 = 240 000 Solving for 𝑥, you will get
𝒙 = 𝟏𝟗𝟐
Therefore, the number of speakers that must be sold to cover the fixed costs is 192.

(c) Required: break-even point, (𝑥, 𝑦) ⇒ (𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦, 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑟𝑖𝑐𝑒) = ?
The break-even quantity, 𝑥, is the number of speakers that must be sold in order to
break-even. To find the break-even quantity, you need to remember that the total revenue
must be equal to the total cost, that is,
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃. Substituting the values, you have
1 250𝑥 = 500𝑥 + 240 000
750𝑥 = 240 000 Solving for 𝑥, you will obtain
𝒙 = 𝟑𝟐𝟎
The break-even price, 𝑦, is the total revenue generated by selling 320 speakers (the break-
even quantity) at ₱1 250 each.
Hence, using
𝒚𝒓 = 𝑺𝒙 you will get
𝒚𝒓 = 1 250(320) = 𝟒𝟎𝟎 𝟎𝟎𝟎
Therefore, the break-even point, BEP is (320, 400 000) or (320, ₱400 000).

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BUSINESS MATHEMATICS QUARTER 1 WEEK 8 P a g e 7 | 10
(d) Required: the break-even graph.
You may use the MS Excel to verify the Results
found previously or use any graphing software to
represent the Revenue function, total Cost
Function, and the fixed cost function respectively.
Observe the figure in the right the intersection of the
Revenue Function and the Total Cost Function is
the Break-Even point having the coordinates
(320, 400 000).

(e) Required: determine if a profit is gained or a loss is incurred at a production level of 𝑥 = 300 units; amount
of profit/loss.
To verify if the shop made a profit or incurred a loss, you need to compare the total revenue, 𝑦𝑟 and the
total cost, 𝑦𝑐 .
If 𝑦𝑟 > 𝑦𝑐 , then a profit is gained. However, if 𝑦𝑟 < 𝑦𝑐 , then a loss is incurred. Solving for 𝑦𝑟 and 𝑦𝑐 , you
have
𝒚𝒓 = 𝑺𝒙 𝒚𝒄 = 𝒎𝒙 + 𝒃
= (1 250)(300) = 500 (300) + 240 000
𝒚𝒓 = 𝟑𝟕𝟓 𝟎𝟎𝟎 𝒚𝒄 = 𝟑𝟗𝟎 𝟎𝟎𝟎
Since 𝑦𝑟 < 𝑦𝑐 , a loss is incurred. This loss can be computed by using
𝑳𝒐𝒔𝒔 = 𝒚𝒄 − 𝒚𝒓
= 390 000 − 375 000
𝑳𝒐𝒔𝒔 = 𝟏𝟓 𝟎𝟎𝟎
Therefore, the shop has incurred a loss of ₱15 000.

Activities

Practice Problems:
Solve the following problems. Show neat, complete, and organized solutions.
1. The variable costs required in producing a Cottons ‘R Us jacket is ₱750. Each jacket is sold at ₱1 200.
The weekly operational overhead expenses (fixed costs) amount to ₱153 000.
(a) Determine the total cost and the total revenue functions.
(b) Find the break-even point and verify your results using a graphing software.
(c) What is the least number of jackets that must be sold so that Cottons ‘R Us starts to make a profit?
(d) If the selling price is increased by ₱300, determine the number of jackets that must be sold in order to
break-even.
2. Kayoteki is a locally-owned electronics shop in Caloocan City that manufactures computer printers. The
selling price for each unit of printer is ₱4 000. Below are the daily production costs as reported by the
management staff:
 Material and packaging costs per printer = ₱2 000
 Fixed costs = ₱150 000
How many printers must be produced and sold daily to guarantee that the shop breaks even?
3. A family-owned gift and novelty shop manufactures miniature glass jars that sells for ₱70 each. If it costs
₱30 to manufacture a piece of miniature glass jar and the monthly fixed costs amount to ₱49 000,
(a) Set up the equation for the following functions: fixed cost, total cost, and total revenue functions
(b) Find the break-even quantity
(c) What is the break-even revenue?
(d) Find the number of units that must be sold to recover the fixed costs

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BUSINESS MATHEMATICS QUARTER 1 WEEK 8 P a g e 8 | 10
(e) How many glass jars must be produced and sold each month to make a profit that is 40% of the fixed
costs?
4. Kukurtinahin, a curtain shop, produces and sells their products at ₱100 each. the cost of producing a
piece of curtain is ₱50 while the monthly operational overhead cost is pegged at ₱40 000.
(a) At what level of production will the shop incur a ₱6 000 loss?
(b) At what level of production will the shop make a ₱20 000 profit?

Check your Understanding

Solve the following problems. Show neat, complete, and organized solutions.
1. A company makes a product that sells for ₱20 per unit. The variable costs amount to ₱12 per unit. The
fixed costs for the production period are ₱40 000. What is the required output level to make a target profit of
₱10 000 ?
2. The table below shows the various costs related to a company’s operations.
labor cost per raw materials utility cost selling price per
unit cost per unit per unit fixed costs unit
₱22 ₱12 ₱6 ₱400 000 ₱60

Use the figures on the table to find the break-even point and verify the break-even point by plotting the
revenue function, Fixed Cost Function, and the total costs function suing a graphing software.

3. A store currently sells a product at ₱12 each. The variable costs are ₱4 per unit. A profit of ₱30 000 is made
per month when 10 000 units were sold. A new production scheme will increase the variable costs by 20%
and fixed costs by 10% . With this scheme, the sales are projected to increase to 12 000 units per month. At
what selling price per unit will the store break-even?

Post-test
Read each item carefully, solve if necessary, and then choose the letter of the correct answer.
Write your answers on a separate sheet of paper.
1. Each of the following are variable costs EXCEPT
A. raw materials C. energy and other utilities
B. manufacturing supplies D. lease and office space rental
2. Rafa is a pastry shop owner. Which of the following costs is considered a fixed cost for Rafa?
A. confectioner sugar C. hourly wages of staff
B. supervisor’s salary D. electricity cost of the shop
3. In a break-even graph, the break-even point is the intersection of which two lines?
C. total cost and variable cost lines C. total revenue and total cost lines
D. variable cost and the fixed cost lines D. total revenue and variable cost lines

4. Which of the following descriptions best explains the break-even point?

A. it is the situation where a business neither makes a profit nor incurs a loss
B. it is the situation where a business makes a profit because of sound financial management
C. it is the point in which the sum of the variable costs and the fixed costs is taken in order to
find the total cost
D. it is the point in which the difference of the total sales and the total cost is taken in order to
determine the profit
5. A company’s financial study shows that the total cost is larger than the total revenue. Which of the
following conclusions can be made?
A. the company is breaking even C. the company is incurring a loss
B. the company is making a profit D. the company will be closing soon
6. An electronics shop sold 350 units of its product at ₱140 each. If the fixed and variable costs were
₱54 000 and ₱35 000 respectively, which of the following financial situations happened to the shop?
A. The shop incurred a ₱9 000 loss C. The shop made a ₱14 000 profit
B. The shop incurred a ₱40 000 loss D. The shop made a ₱40 000 profit

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BUSINESS MATHEMATICS QUARTER 1 WEEK 8 P a g e 9 | 10
 7. Poker Face, a face mask manufacturer, is expecting to produce 7 000 pieces of face masks next month
that will be sold for ₱15 each. A piece of face mask costs ₱9 to produce and the fixed cost will be ₱30 000.
What is the break-even quantity for the next month?
A. 1 667 pieces B. 4 000 pieces C. 5 000 pieces D. 8 333 pieces
8. Which of the following costs are expenses that a business is obligated to pay no matter how much or
how little of the product or service is produced or manufactured?
A. fixed cost B. variable cost C. total cost D. production cost
9. A store is selling a product at ₱10 per piece. The overhead cost is ₱40 000 while the cost of producing
a piece is ₱6. How many pieces should be produced and sold to break even?
A. 8 000 B. 10 000 C. 12 000 D. 14 000
10. Shubaka, a shoe store in Marikina, sells kids’ shoes for ₱450. Each pair costs ₱200 to produce. The
fixed costs are ₱750 000. If the store’s goal is to have a profit of ₱250 000, how many pairs have to be sold to
achieve this goal?
A. 1 000 B. 2 000 C. 3 000 D. 4 000

Remember

Understanding and applying the concepts in this lesson allows you to learn break-even analysis.
Using Break-Even Analysis, you must remember the following formulas and information:

𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑭𝒖𝒏𝒄𝒕𝒊𝒐𝒏 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 𝑭𝒖𝒏𝒄𝒕𝒊𝒐𝒏

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛
Using 𝒚 = 𝑭𝑪 = 𝒃 Using 𝒚𝒄 = 𝒎𝒙 + 𝒃
Using 𝒚𝒓 = 𝑺𝒙
Where: 𝐹𝐶 𝑎𝑛𝑑 𝑏 means the Where: 𝒚𝒄 the total costs
Where: 𝑦𝑟 the Revenue
fixed cost 𝑚 the variable costs
𝑆 the Selling price
𝑥 the quantities to be sold
𝑥 the quantities to be
𝑏 the fixed cost
sold
𝑃𝑟𝑜𝑓𝑖𝑡 𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 In order to break-even, you need to If 𝑦𝑟 > 𝑦𝑏𝑐 ,the fixed
then cost is gained.
a profit
Using 𝑷 = 𝒚𝒓 − 𝒚𝒄 remember that the total revenue However, if 𝑦𝑟 < 𝑦𝑐 , then a loss is
Where: 𝑷 the Profit must be equal to the total cost, that incurred
𝑦𝑟 the Revenue is,
𝒚𝒄 the total costs 𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝒚𝒓 = 𝒚𝒄
𝑺𝒙 = 𝒎𝒙 + 𝒃.

Additional Activity

To better understand the lesson, watch the video lesson on

https://www.youtube.com/watch?v=GHpyLKJ8eqI and https://www.youtube.com/watch?v=jvIQfzIKkXA entitled
“Break Even Analysis using Excel” and “Cost, Revenue, Profit functions, Break-even point” respectively.

References:
Pagoso, Cristobal M. Business Mathematics. Quezon City, Metro Manila: Rex Bookstore, 2005.
Commission on Higher Education. Business Mathematics: Teacher’s Guide. 1st Edition. Quezon City,
Metro Manila: CHED, 2016.
Tabuloc, Maria Cristina. Quantitative Techniques in Business. Quezon City, Metro Manila: Maxcor
Publishing House, Inc., 2010.
Vasquez, Eleanita E. Calculus with Analytic Geometry for Business and Economics, Second Edition. Taft
Avenue, Manila: De La Salle University, 1982

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