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    Break-Even Analysis: - A Standard Approach To Choosing Among - Model Seeks To Determine The Point in Units

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    Break-even analysis is used to determine: 1) The point at which total revenue and total costs are equal for a new process or equipment, and 2) How many units must be produced and sold for profits to exceed costs. The break-even demand can be calculated as the total fixed costs divided by the difference between the unit price and variable unit costs. For example, if a new computer costs $5,000 and customers pay $25 per order while variable costs are $5 per order, the break-even demand is 250 customers.

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    Break-Even Analysis: - A Standard Approach To Choosing Among - Model Seeks To Determine The Point in Units

    Uploaded by

    aj
    23 views3 pages
    Break-even analysis is used to determine: 1) The point at which total revenue and total costs are equal for a new process or equipment, and 2) How many units must be produced and sold for profits to exceed costs. The break-even demand can be calculated as the total fixed costs divided by the difference between the unit price and variable unit costs. For example, if a new computer costs $5,000 and customers pay $25 per order while variable costs are $5 per order, the break-even demand is 250 customers.

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    bep analysis

    Original Title

    Break Even Analysis

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    Break-even analysis is used to determine: 1) The point at which total revenue and total costs are equal for a new process or equipment, and 2) How many units must be produced and sold for profits to exceed costs. The break-even demand can be calculated as the total fixed costs divided by the difference between the unit price and variable unit costs. For example, if a new computer costs $5,000 and customers pay $25 per order while variable costs are $5 per order, the break-even demand is 250 customers.

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    23 views3 pages

    Break-Even Analysis: - A Standard Approach To Choosing Among - Model Seeks To Determine The Point in Units

    Uploaded by

    aj
    Break-even analysis is used to determine: 1) The point at which total revenue and total costs are equal for a new process or equipment, and 2) How many units must be produced and sold for profits to exceed costs. The break-even demand can be calculated as the total fixed costs divided by the difference between the unit price and variable unit costs. For example, if a new computer costs $5,000 and customers pay $25 per order while variable costs are $5 per order, the break-even demand is 250 customers.

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    of 3

    Break-Even Analysis

    • A standard approach to choosing among


    alternative processes or equipment
    • Model seeks to determine the point in units
    produced (and sold) where we will start making
    profit on the process or equipment
    • Model seeks to determine the point in units
    produced (and sold) where total revenue and
    total cost are equal
    Break-Even Analysis (Continued)
    Break-even
    Break-evenDemand=
    Demand=

    Purchase
    Purchasecost
    costof
    ofprocess
    processororequipment
    equipment
    Price
    Priceper
    perunit
    unit --Cost
    Costper
    perunit
    unit
    or
    or
    Total
    Totalfixed
    fixedcosts
    costsofofprocess
    processor
    orequipment
    equipment
    Unit
    Unitprice
    priceto
    tocustomer
    customer --Variable
    Variablecosts
    costsper
    perunit
    unit

    This formula can be used to find any of its components algebraically if the
    other parameters are known
    Break-Even Analysis (Continued)
    •• Example:
    Example: Suppose
    Supposeyou youwant
    wantto topurchase
    purchaseaanew
    newcomputer
    computerthatthat
    will
    willcost
    cost$5,000.
    $5,000. ItItwill
    willbebeused
    usedto
    toprocess
    processwritten
    writtenorders
    ordersfrom
    from
    customers
    customerswhowhowill
    willpay
    pay$25
    $25each
    eachfor
    forthe
    theservice.
    service. The
    Thecost
    costofof
    labor,
    labor,electricity
    electricityand
    andthetheform
    formused
    usedto
    toplace
    placethe
    theorder
    orderisis$5
    $5per
    per
    customer.
    customer. How
    Howmany
    manycustomers
    customerswill
    willwe
    weneed
    needtotoserve
    servetotopermit
    permit
    the
    thetotal
    totalrevenue
    revenueto tobreak-even
    break-evenwithwithour
    ourcosts?
    costs?
    •• Break-even
    Break-evenDemand:
    Demand:
    == Total
    Totalfixed
    fixedcosts
    costsof
    ofprocess
    processor
    orequip.
    equip.
    Unit
    Unitprice
    priceto
    tocustomer
    customer––Variable
    Variablecosts
    costs
    =5,000/(25-5)
    =5,000/(25-5)
    =250
    =250customers
    customers

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