Break-Even Analysis

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 Step 3: Determine Costs
Variable Costs Fixed Costs
Costs of production Costs that don’t
that do Change with Change with the
the number of units number of units
produced. produced.

Processed Materials, Utilities,

Raw Equipment
materials Costs

Total Costs
Sum of the Fixed and Variable Costs for a Set
Number of Units Produced
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 Figure 12.5: Break-Even Analysis

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 My Break-Even Analysis

• Profit = TR – TC
• 0 = p*q – [FC + (VC*q)]
EX. Calculate the Break-Even quantity
where
price of sells unit 2.4
Variable Costs to unit 1.6
Fixed Costs 40000

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0 = p*q – [FC + (VC*q)]

= 2.4 *q – 4000 +1.6 *q

4000 = 2.4 *q – 1.6 *q

4000 =.8*q

4000 / .8 = q

5000 = q

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 A firm has fixed operating costs of
$10,000, the sale price per unit of its
product is $25, and its variable cost per
unit is $15. The firm's operating
breakeven point in units is

sale price = 25

variable cost = 15

fixed operating costs = 10000

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0 = p*q – [FC + (VC*q)]

= 25 *q – 10000 +15 *q

10000 = 25 *q – 15 *q

10000 = 10*q

10000 / 10 = q

1000 = q

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Tony's Beach T-Shirts has fixed annual
operating costs of $75,000. Tony retails his T-
shirts for $14.99 each and the variable cost
per T-shirt is $4.99. Based on this information,
the breakeven sales level in dollars is

Retails = 15

variable cost = 5

fixed operating costs of $75,000

breakeven sales = ???

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 breakeven sales = ???

0 = TR – TC

= p*q – [FC + (VC*q)]

= p*q –FC - (VC*q

= 15*q – 75000 - (5*q)

= 10*q – 75000
q = 75000/ 10= 7500
breakeven sales =7500 * 15 = 112,500

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A firm has fixed operating costs of $253,750, a sales price per
unit of $100, and a variable cost per unit of $65. The firm's
operating breakeven point in dollars is

fixed operating costs of $ 253,750

sales price per unit of $100

variable cost per unit of $65

The firm's operating breakeven

point in dollars ???

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 breakeven sales = ???

0 = TR – TC

= p*q – [FC + (VC*q)]

= p*q –FC - (VC*q

= 100*q – 253,750
- (65*q)
= 35*q – 253,750
q = 253,750/ 35= 7250
breakeven sales =7250 * 100 = 725,000

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