SHS

Business Mathematics
Quarter 1, Week 8- Module13
Determine the Break-Even Point
- ABM_BM11BS-Ij-9

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Business Mathematics – SHS
Quarter 1 –Week 8- Module 13: Determine the Break-Even Point

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Development Team of the Module

Writer: MARIA ASUNCION T. BRIZUELA, ABM Teacher , Tabaco NHS
Editors: NERISSA A. MORTEGA, HT III, San Lorenzo NHS
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HILDA J. CARLET, MT, TNHS
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DESIREE CANICULA, TNHS
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JONJON MONTER, Principal, Sagrada HS, Iriga City
LOYD BOTOR, EPS, RO V
Layout Artist: ROWENA B. BENOYO, San Lorenzo NHS

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 Business Mathematics – SHS
Quarter 1 –Week 8- Module 13
Determine the Break-Even Point

I. Introduction

Did you know that break-even analysis is a very important factor in

understanding the financial health of a company? It helps determine the
relationship among various elements such as costs (variable and fixed),
prices, and volume of sales that will make revenue and total cost equal,
which means that there is no profit nor loss. This module explains what
the break-even point is, how it is computed and the formula in determining
the break-even point.

II. Objective:

At the end of this module, you should be able to

• determine the break-even point.

III.Vocabulary List

• Fixed Cost – the cost necessary to keep the business running

regardless of the sales volume.
• Variable Cost–is an expense that changes in proportion to
production output.

• Revenue – is the income generated from normal business

operations.
• Break-Even Point – the point at which the business will neither earn
a profit nor experience a loss.

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IV. Pre-Test:

Find out if the following statements are true or false by simply writing letter T
if true and F if false.

__1. Rent expense as well as property, taxes and licenses are variable
expenses.

__2. Increase in units will increase the variable expenses.

__3. An agent’s commission is a fixed expense.

__4. Break-even analysis is important to manufacturing companies than

to business engaged in services.

__5. A secretary’s salary is an example of a fixed expense.

__6. A retailer’s cost of goods sold is a variable expense.

__7. To get the break-even point in pesos, multiply the BEP in units to
unit price.

__8. Combining P100,000 with the fixed expenses, the company will
yield a profit of P100,000 instead of at break-even point.

__9. To reduce the break-even point, the company should reduce its
variable expenses.

__10. Increases in sales do not change fixed expenses.

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V – Learning Activities:
Lesson 1
Determine the Break-Even Point

Break-Even Point Definition

Break-even point is the production level where total
revenues equals total expenses during a
manufacturing process or an accounting period.
Since revenues equals expenses, the net income for
the period will be zero.

Calculating the Break-Even Point

To calculate the break-even point, sales and costs are
needed. Costs include fixed costs and variable costs.
Fixed costs are expenses that remain relatively the
same and do not change based on production or sales
volume. Examples are rent or mortgage expenses,
salaries of employees, loans, equipment expenses
and capital expenditures. Variable costs are not
consistent and change based on the production
output or a change in sales volume. It is the cost of
producing each product. Examples are wages,
utilities, commissions and marketing. Variable costs
are flexible and can go up and down every month
based on business activities. Cost of Goods Sold
(COGS) is considered a variable cost because the
amount will vary based on the quantity of products
produced and the cost of the materials used to
manufacture products. Another important factor in
break-even analysis is the revenue®.
R = p*x
where p is the price and x is the number of units

At break-even, the total cost TC is compared with the

total revenue R to determine the level of production
(that is, number of units produced) at which TC = R.

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 To determine the number of units to be sold to break-even, we can
assume that:
Sales = Variable Costs + Fixed Costs
If we let x represent the number of units to break-even, we can use
the following formula adapted from the above formula.
Px = vx + FC
where P is the unit price;
x is the number of units;
v is the variable cost per unit; and
FC is total fixed cost.
To solve for x:
Px – vx = FC
x(P-v) = FC
x = FC
(P-v)

Therefore, the break-even point BEP in number of units would be:

x = FC
(P-v)
The break-even point BEP in pesos would be:
BEP in Pesos = Unit Price x BEP in Units

Learning Activities
Learning Situation 1:

Maribel is planning to open a restaurant where she plans to sell each

cup of jelly flan at P50. She assumed that the fixed cost she needs to pay
on a monthly basis amounting to P40, 000 includes her rent expense and
the salaries for her employees, and etc. So, even if Maribel has no sales,
she is still obliged to pay this amount. If a cup of jelly flan costs Maribel
P10

a. What is the break-even quantity?

b. How much profit will she earn if she sells 500 containers?
1500 cups?
c. How many containers must be sold to earn a profit of
P40,000?

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Solutions:

In the problem, Maribel estimated that the fixed cost she needs to
pay every month is given by
FC = 40,000
The variable cost is VC = 10x since it will cost herP10 per
container. So, for 2 cups the cost is P20, for 3 cups is P30, and so on.

The total cost is the sum of the fixed cost and variable cost. That
is,
TC = FC + VC,
Where TC is the total cost, and FC and VC are fixed cost and
variable cost, respectively. Maribel restaurant’s total cost is TC = 40,000
+ 10x, where x is the number of cups of jelly flan.

The revenue in the problem, therefore, is R = p * x = 50x

a .At break-even, TC = R, so
50x = 40,000 + 10x
40x = 40,000
x = 1,000

The break-even quantity is 1,000 cups of jelly flan. This implies

that 1,000 cups of jelly flan must be sold each month so that Maribel
will not incur any profit or loss.
Therefore, when x = 1,000, the total cost is 50,000 which is
equal to the revenue.
b. P = TC – R
We wish to find the profit when x = 500
P = 50x – (40,000 + 10x)
P = 40x – 40,000
= 40(500) – 40,000 = -20,000

Observe that P ˂ 0 when x = 500, which means that the

business will incur loss. When x = 1,500 cups, the profit is given by P
= 40(1,500) – 40,000 = P20,000. The value of P here is positive which
implies that there is profit when x = 1,500. The restaurant will earn
P20,000.
d. To earn a profit of P40,000, we equate P = 40,000.

40x – 40,000 = 40,000

Solving for x, we get
x = 2,000
This means that, in order to earn a profit of P40,000, Maribel
must sell 2,000 cups of jelly flan in a month.

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Learning Situation 2:

Jane sells 1 ball pen at P10 per piece. Her fixed cost is P5,000,
and variable cost is P5 per ball pen.
a. At what level of production (that is, number of ball pens)
will Jane have a profit of P2,000? A loss of P1,000?
b. How many pieces of ball pen will she break even?
c. Find the break-even point.

Solution:
a. P = R – TC
= 10x – (5,000 + 5x)
= 5x – 5,000
P = 2,000
2,000 = 5x – 5,000
X = 1,400
To obtain a loss of 1000, we set P = -1,000 and solve for x,
-1,000 = 5x – 5,000
4,000 = 5x
800 = x
b. P = x- 5,000 = 0
x=1,000 pieces of ballpen
c. When x = 1,000, we get
R=10(1,000)=10,000
Hence, the break-even point is (1,000, 10,000)

Learning Situation 3:

Calculate the break-even point in sales units and sales pesos

from the following information:

Unit price P22

Variable cost P10
Fixed costs P24,000

Solution:

• The break-even point BEP in number of units would be:

x= FC
(P-v)
BEP in Units (x) = P24,000 = P24,000 = 2,000 units
P22 – 10 P12

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 • The break-even point BEP in pesos would be:
BEP in Pesos = Unit Price x BEP in Units
BEP in Pesos 2,000 units x P22 =P44,000

V. Practice Exercises

Practice Task 1

Find the break-even point in units and in peso given that the
unit price of a certain commodity is P15.00; variable cost,
P5.00; and total fixed cost, P12,000.

Practice Task 2:

Ace Merchandising’s variable cost per unit is P8.00. The

company’s rent expense is P4,000; salaries expense is
P8,000 and bank loan amortization is P4,000. If the company
sold a total of 20,000 units yielding a total sale of P200,000,
find the BEP in units and BEP in pesos.

VII. Post- Test

Big Sister company’s variable cost per unit is P5.00. The

company’s salaries expense for its employees is P6,000
and leasehold expense of P4,000. The unit price of their
main commodity is P13. Find the BEP in units and BEP
in pesos.

VIII. Assignment:

JM Trading sells 1 bottle of printer ink at P100 per

bottle. His fixed cost is P8,000, and variable cost is
P4 per bottle.
a. At what level of production (number of
bottles of ink) will the business owner have a
profit of P5,000? A loss of P2,000?
b. How many pad papers will the company
break even?
c. Find the break-even point.

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Key to Correction
Pre-Test

1. F 3. F 5. T 7. T 9. F
2. T 4. T 6. T 8. T 10. T

Practice Task 1
• The break-even point BEP in number of units would be:
x = FC
(P-v)
BEP in Units (x) = P12,000 = P12,000 = 1,200 units
P15 – 5 P10
• The break-even point BEP in pesos would be:
BEP in Pesos = Unit Price x BEP in Units
BEP in Pesos = 1,200 units x P15 =P18,000

Practice Task 2
• The break-even point BEP in number of units would be:
x = FC
(P-v)
Unit Price = P200,000/20,000 units
= P10
BEP in Units (x) = P16,000 = P16,000 = 8,000 units
P10 – 8 2
• The break-even point BEP in pesos would be:
BEP in Pesos = Unit Price x BEP in Units
BEP in Pesos = 8,000 units x ‽10 = ‽80,000

Post- Test

• The break-even point BEP in number of units would be:

x = FC
(P-v)
BEP in Units (x) = P10,000 = P10,000 = 1,250 units
P13 – 5 P8
• The break-even point BEP in pesos would be:
BEP in Pesos = Unit Price x BEP in Units
BEP in Pesos = 1,250 units x P13 = P16,250

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 Assignment

A. P = R – TC
= 100x – (8,000 + 4x)
= 96x – 8,000
P = 5,000
5,000 = 96x – 8,000
X = 135.42
To obtain a loss of 2000, we set P = -2,000 and solve for x,
-2,000 = 96x – 8,000
6,000 = 96x
62.5 = x
B. TC= R
8,000 + 4x = 100x
8,000 96 x
=
96 96
x=83.33
C.x= 83.33
R= 100 (83.33)
R= 8,333
Hence, the break-even point is (83.33, 8,333)

References:
All contents of this module is credited to the rightful owner.

• Business Math Textbook (Government Property) Copyright @ 2016 by Vibal

Group, Inc and Brian Roy C. Lopez, Leah C. Martin-Lundag, and Keneth
Adrian Dagal. Pages 96-101

• Business Mathematics by Norma D. Lopez-Mariano, PhD ABM –

Accountancy, Business and Management K12 First Edition Pages 128-130

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