Brea k - Even

A na lysi s
Prepared by: For. Liezel Cortejos-Obo
Break-Even Analysis
A financial tool used by businesses to determine
the point at which total revenue equals total
costs, resulting in neither profit nor loss.

It helps to determine actual progress compared

with planned progress, and it is valuable as a
decision-making tool.
Break-Even Point

The point at which total revenue equals total

costs, resulting in neither profit nor loss.

There is no net income or net loss.

Break-Even Point Calculation
Suppose that there are certain
annual fixed costs associated with
the manufacturing and selling of a
certain product, say Php 10,000.
Suppose, also, that the variable
cost of manufacturing and selling is
Php 50 per item sold. This Php 50
is the cost of materials, labor,
services, etc., which are incurred in
bringing the product up to the
point where it can be sold. If the
product is sold for Php 70, the
analysis for the sale of 100 items
would be as follows:
Solution
Revenue:
Php 70 x 100 items = Php 7,000
Total Revenue = Php 7,000
Costs:
Fixed Costs = Php 10,000
Variable Costs = Php 50 x 100 items
= Php 5,000
Total Costs = Php 15,000
Profit = Revenue – Costs
= Php 7,000 – Php 15,000
= - Php 8,000
Break-Even Point Calculation
If 300 items were produced and
sold, the analysis would be as
follows:
Solution
Revenue:
Php 70 x 300 items = Php 21,000
Total Revenue = Php 21,000
Costs:
Fixed Costs = Php 10,000
Variable Costs = Php 50 x 300 items
= Php 15,000
Total Costs = Php 25,000
Profit = Revenue – Costs
= Php 21,000 – Php 25,000
= - Php 4,000
Break-Even Point Calculation Solution

Revenue:
Php 70 x 500 items = Php 35,000
Total Revenue = Php 35,000
Now suppose that 500 items are
sold. Costs:
Fixed Costs = Php 10,000
Variable Costs = Php 50 x 500 items
= Php 25,000
Total Costs = Php 35,000
Break-even point
Profit = Revenue – Costs
= Php 35,000 – Php 35,000
=0
Formula

R = px C = F + bx
where: where:
R = revenue C = total cost
p = selling price per unit F = fixed costs
x = no. of units b = cost/selling price per unit
x = no. of units
Note: bx = variable cost
Formula

Set: R=C

So use the equations: px = F + bx

Thus: (p – b)x = F

F
Solving for x: x=
(p − b)
Break-Even Point Calculation Solution using the Break-even Point Formula

Suppose that there are certain Given:

annual fixed costs associated with F = Php 10,000
the manufacturing and selling of a P = Php 70
certain product, say Php 10,000. b = Php 50
Suppose, also, that the variable
cost of manufacturing and selling is F
x = (p − b)
Php 50 per item sold. This Php 50
is the cost of materials, labor, Php 10,000
services, etc., which are incurred in x = ( Php 70 −Php 50)
bringing the product up to the
point where it can be sold. If the Php 10,000
x=
product is sold for Php 70, the (Php 20)
analysis for the sale of 100 items
would be as follows: x = 500 items
Break-Even Point Calculation Solution using the Break-even Point Formula

Data from an accounting department: Given:

Fixed Costs F = Php 140,000
• Manufacturing Expenses = Php p = Php 500
105,000 per year b = Php 400
• Selling and Additional Expenses =
Php 35,000 per year
• Total Fixed Costs (F) = Php 140,000 F
x = (p − b)
Variable Costs
• Materials and Labor = Php 240 per Php 140,000
unit x = ( Php 500 −Php 400)
• Manufacturing Expenses = Php 60
per unit
• Selling and other Expenses = Php 100 Php 140,000
x=
per unit (Php 100)
• Total Variable Costs = Php 400 per unit

Selling Price of Item = Php 500 per unit x = 1,400 units per year
 Note:

Computation process: round off to 4th decimal place

For final answer: round off to 2nd decimal place
- end