The document discusses break-even analysis for a business. It defines break-even point as the sales volume at which total revenue equals total costs, meaning there is no profit or loss. The key factors in a break-even analysis are fixed costs, variable costs per unit, sales price per unit, and sales volume. It provides the basic formulas for calculating total revenue, total costs, and profit at different sales volumes. Examples are given to demonstrate how to calculate break-even point, profits, and how costs and prices need to change to achieve break-even at a given sales level.
The document discusses break-even analysis for a business. It defines break-even point as the sales volume at which total revenue equals total costs, meaning there is no profit or loss. The key factors in a break-even analysis are fixed costs, variable costs per unit, sales price per unit, and sales volume. It provides the basic formulas for calculating total revenue, total costs, and profit at different sales volumes. Examples are given to demonstrate how to calculate break-even point, profits, and how costs and prices need to change to achieve break-even at a given sales level.
The document discusses break-even analysis for a business. It defines break-even point as the sales volume at which total revenue equals total costs, meaning there is no profit or loss. The key factors in a break-even analysis are fixed costs, variable costs per unit, sales price per unit, and sales volume. It provides the basic formulas for calculating total revenue, total costs, and profit at different sales volumes. Examples are given to demonstrate how to calculate break-even point, profits, and how costs and prices need to change to achieve break-even at a given sales level.
STORE BREAK - EVEN POINT ANALYSIS: LINEAR fUNCTIONS
BREAK EVEN POINT (BEP) the simplest quantitative model used by decision makers which concerned the interrelationship of cost, volume and profit common point between the total revenue and total cost total revenue equals the total cost the company has no profit but has no loss also
also referred to as Cost Volume Analysis is the determination of the number of units that must be produced and add to equate sale with total cost the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.
BREAK-EVEN ANALYSIS DEPENDS ON THE FOLLOWING VARIABLES: Selling price per Unit Total Fixed Cost Variable Unit Cost Forecasted Net Profit SELLING PRICE PER UNIT The amount of money charged to the customer for each unit of a product or service. TOTAL FIXED COST constant expenditures without regards to the number of units produced like: rent expense, depreciation expense, factory supervisory salary. The sum of all costs required to produce the first unit of a product. This amount does not vary as production increases or decreases, until new capital expenditures are needed VARIABLE COST Variable Unit Cost Costs that vary directly with the production of one additional unit. Examples of this are utilities, wages, raw materials, and packaging. Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected unit sales times the variable unit cost.
COMBINATION COST costs that are a combination of fixed and variable: a certain minimum level will be incurred regardless of your sales levels, but the costs rise as your volume increases. (ex. phone bill) Strictly speaking, these costs should be separated into their fixed and variable components, but that may be more trouble than it's worth for a small business. To simplify things, just decide which type of cost (fixed or variable) is the most important for the particular item, and then classify the whole item according to the more important characteristic. For example, in a telemarketing business, if your phone call volume charges are normally greater than your line access charges, you'd classify the entire bill as variable.
FORECASTED NET PROFIT Total revenue minus total cost
Total Revenue (TR) the product of the selling price per unit and number of units sold
Total Cost (TC) sum of fixed cost (FC) and variable cost (VC)
COMPONENT OF BREAK EVEN ANALYSIS 1. Volume level of production by a company, which is expressed as the number of units (quantity) produced and sold 2. Profit the difference between total Sales and total cost or the income generated by the sale of product 3. Costs usual expenditures that must be taken into account in order to determine profit
FORMULA TR = Price per unit x units sold TC = FC + VC Profit = TR TC TR = TC OR TR TC = 0 ,
* Profit = 0 at break even point
BEP GRAPH MARKET EQUILIBRIUM GRAPH
EXERCISES 1. Consider a firm that buys units for Php 10.00 and sells them for Php 15.00. There are no other variable cost. Fixed costs are at Php 6000, Use the break-even formula to determine the following:
a) TR, TC and profit functions b) Sales volume when profit is Php 8000 c) Profit when sales are 500 units d) The break-even quantity and revenue e) The amount by which the variable cost per unit has to be decreased in order to break even at 500 units. (selling price and FC remains) f) The new fixed cost in order to break even at 800 units. Selling price cost remains constant. g) The new selling price per unit, to break even at 500 units, if VC and TC are constant.
Given:
Variable Cost = 10 per unit Selling price = 15 per unit Fixed Cost = 6000
b. Profit = 8000 Profit = 5x 6000 8000 = 5x 6000 -5x = -6000 8000 -5x/-5 = -14000/-5 x = 2800 units
c. x = 500 Profit = 5 (500) 6000 = 2500 6000 = Php 3500 loss
d. TR = TC 15x = 10x + 6000 15x-10x = 6000 5x/5 = 6000/5 x = 1200 units (BEP Quantity)
TR = 15x = 15 (1200) TR = Php 18000 BEP revenue
e. Let y = new variable cost VC = 500y Original TC = 10x + 6000 New TC = 500y + 6000
TR = TC 15 (500) = 500y + 6000 7500 = 500y + 6000 -500y = 6000 7500 -500y/-500 = -1500/-500 y = 3 new variable cost per unit *Since the old VC is 10 per unit and the new VC is 3 so it decreases 7 per unit
f. Given: BEP quantity = 800 let z = fixed cost
TR = TC 15 (800) = 10 (800) + z -z/-1 = (8000-12000)/-1 z = 4000 fixed cost
or
TC = TR 10 (800) + z = 15 (800) 8000 + z = 12000 z = 12000 8000 z = 4000
g. Given: BEP quantity = 500 unit Let p = selling price
TR = TC 500p = 10 (500) + 6000 500p/500 = 11000/500 p = Php 22.00 selling price per unit
EXERCISES 2. A business firm produces and sells a particular product. Variable cost is Php 30.00 per unit. Selling price is Php 40.00 per unit. Fixed cost is Php 60000. Determine the following: a) Profit when sales are 10000 units. b) The break-even point quantity and revenue. c) Sales when profits are at Php 9000. d) The amount by which fixed cost will have to be decreased or increased, to allow the firm to break even at sales volume of 500 units. VC and selling price per unit remain constant. e) The volume of sales to cover the fixed cost. f) Suppose that the firm wants to break even at a lower number of units, assuming that FC and VC remain constant, how is the selling price affected? g) Find the TC when sales are 500 units.
Given:
VC = Php 30.00 per unit SP = Php 40.00 per unit TC = Php 60000
b. TR = TC 40x = 30x + 60000 10x/10 = 60000/10 x = 6000 (BEP quantity )
TR = 40 (6000) TR = Php 240000 BEP revenue
c. Given: Profit = 9000
Profit = 10x 60000 9000 = 10x 60000 -10x = -60000 9000 -10x/-10 = -69000/-10 x = 6900 units sold
TR = 40 (6900) TR = 276000 for 6900 units sold
d. Given: BEP quantity = 500 units Let y= fixed cost
Solution: TC=TR 30(500) + y = 40(500) 15000 + y = 20000 y = 20000 - 15000 y = 5000 new fixed cost.
*Since the old FC is 60000,and the new FC is 5000 so there is a decrease of 55000. e. TR=FC 40x = 60000 40x/40 = 60000/40 x = 1500 units of sale to cover the fixed cost
f. If the firm wants to break even at a lower number of units, but the FC and VC remain constant. The selling price should be increased. TR = TC SP x X = FC + VC 3. A factory sells a particular product at Php 0.80 per unit. The variable cost is Php 0.60 per unit. The total fixed cost is Php 12000. Determine the following:
a) The break-even point in units of sales. b) Profit when sales are 10000 units. c) TC when sales are 5000 units. d) The amount by which the selling price will have to increase or decrease for the firm to break even at 4000 units. Assume all costs remain the constant. e) The amount by which the fixed cost will have to decrease in order for the firm to break even at a sales volume of 4000 units. Assume selling price and variable cost remain the same.
Given:
SP = Php .80 per unit VC = Php .60 per unit FC = Php 12000
A. BEP TR = TC .80x = .60x + 12000 .80x - .60x = 12000 .20x/.20 = 12000/.20 x = 60000 BEP quantity
d. Given: BEP quantity = 4000 let S = selling price
TR = TC 4000S = .60(4000) + 12000 4000S = 2400 + 12000 4000S/4000 = 14400/4000 S = 3.60 new selling price to break even of 4000
e. Given: BEP quantity = 4000 units let z = fixed cost
TC = TR .60x + z = .80x .60(4000) + z = .80(4000) 2400 + z = 3200 z = 3200 - 2400 z = 800 new fixed cost to break even of 4000 units
* Since the old FC is 12000,therefore there should be a decrease of 11200 to have a break even quantity of 4000.
4. A manufacturer sells his product at Php 10.00 per unit.
a) Find the total revenue if the volume sales is 1800. b) If fixed cost is Php 3000, represent the total cost when the variable cost per unit is Php 5.00 c) Supposed that the variable cost per unit is 70% of the selling price. Represent the total cost when fixed cost is Php 5000. d) If variable cost is 20% of the selling price and the fixed cost is Php 1000, find the break-even point.
Given: SP = Php 10 per unit
Solution: a. Given: Unit Sold = 1800 Solution: TR = 10x = 10 (1800) = 18000
b. Given: FC = 3000 VC = 5 per unit Solution: TC = 5x + 3000