AFIA AHSAN

LECTURER
MPE, AUST
• Technique for evaluating process and equipment
alternatives

• Objective is to find the point in dollars and units

at which cost equals revenue

• Requires estimation of fixed costs, variable costs,

and revenue
• Fixed costs are costs that continue even if no
units are produced (Depreciation, taxes, debt,
mortgage payments)

• Variable costs are costs that vary with the volume

of units produced(Labor, materials)
ASSUMPTION

• Revenue & costs are relatedlinearly to volume

• All information is known with certainty

• No time value of money

𝐁𝐏𝐄𝐗= break-even point in (units)

𝐁𝐏𝐄$= break-even point in (dollars/Taka)

s = price per unit (after all discounts)

Q = number of units produced

TR = total revenue = s×Q

= total sales
F = fixed costs
v = variable cost per unit
TC = total costs = F + vQ
 𝐅
𝐁 𝐄 𝐏𝐗
𝐒−𝐕

𝐅 𝑭
𝐁 𝐄 𝐏 $ = 𝐁 𝐄 𝐏𝐗 𝐏 = 𝐒=
𝐒−𝐕 𝑽
𝟏−( )
𝑺
 𝑭 $𝟏𝟎𝟎𝟎𝟎
𝑩𝑬𝑷 $ = 𝑽 = 𝟏.𝟓+.𝟕𝟓 = $𝟐𝟐, 𝟖𝟓𝟕. 𝟏𝟒
𝟏−( ) 𝟏−[ ]
𝑺 𝟒

𝐅 $𝟏𝟎𝟎𝟎𝟎
𝐁𝐄𝐏𝐗 = = 𝟓, 𝟏𝟕𝟒
𝐒−𝐕 𝟒−(𝟏.𝟓+.𝟕𝟓)
 Item Price Cost Annual Forecast Sales Unit

Sandwich $2.95 $1.25 7000

Soft Drinks $.8 $.3 7000
Baked Potato $1.55 $.47 5000
Tea $0.75 $.25 5000
Salad Bar $2.85 $1 3000

Fixed Cost= $3,500 per month