DETERMINE THE

BREAK-EVEN
POINT
Background Information

This lesson focuses on the

discussion of determining the
break-even point and solve
problems involving it.
Break-even is the point of balance making neither a
profit nor a loss (Bacani, et al, 2017). Any number below
the break-even point constitutes a loss while any number
above it shows a profit. It also happens when the Revenue
(R) is equal to Expense (E).

Break-even point is the point when the total revenues

and total cost of expenses are equal Soriano, et al, 2017).
In other words, it is neither a profit nor a loss. To
illustrate this concept, refer to this graph:
Let us analyze this graph. In most cases, the revenue R and the
cost of expense E depend on the quantity of products (we denote
such quantity as x). This means that R and E are functions of x,
and we can write such functions as R(x) and E(x), respectively.
We can see from the graph that as x increases, both R(x) and E(x)
also increase. At a certain value of x, the two functions intersect.
This point of intersection is called the break-even point. This
point identifies the quantity of a product for which the revenue
and the cost of expenses are equal.
 Let us study how the break-even point is calculated.

Example 1.
It costs ₱8 pesos to make one turon. I made 50 pieces and I want to sell them at ₱10 each.
How many pieces must I sell in order to reach the break-even point?

Solution:
Since I made 50 pieces turons and spent ₱8 on each piece, the cost of my expense is:
Eq.1. E = (₱8)(50) = 400
It was also given that I will sell the turons at ₱10 each. So if I sell x pieces of turons, the revenues is:
Eq.2. R = 10x
At the break-even point, the revenue and the cost of expenses are equal;
that is: R = E
So from Eq.1 and Eq.2 above, we can form the following equation and solve for x by substitution.
Eq.1. E = (₱8)(50) = ₱400
Eq.2. R = 10x
R = E 10x =
400
x = 40

This means that I need to sell 40 pieces of turon to reach break-even point
Example 2.

Jose sells siomai around his neighborhood. He estimates that

it will cost him ₱2.50 to make a piece of siomai. He also plans
to buy a cart worth ₱ 2,100. If he plans to sell the siomai at ₱4
each,

(a)How many pieces must he sell in order to reach the break-

even point?

(b)Determine the break-even point.

(a) Since it costs ₱2.50 to make each piece of siomai, the production cost for x pieces of siomai is
represented by 2.50x. The cost of the cart is ₱2,100. The total expenses E is the sum of the production
cost and the cost of the cart.
Eqn.1. E = ₱2.50(x)+ ₱2,100 =5600

On the other hand, if we let R as the total revenue from selling x pieces of siomai at ₱4
each, then we have the equation:
Eqn.2. R = 4(1x)= 5600
We can now solve algebraically for the break-even point. At the break-even point, R = E.
So from Eq.1 and Eq.2 above, we can form the following equation and solve for x by
substitution.

Eqn.1. E = ₱2.50x + ₱2,100

Eqn.2. R = 4x
R=E
4x = 2.50x + 2,100
4x - 2.50x = 2,100
1.5x = 2,100
1.5 1.5
x = 1,400
 (a)If we substitute x = 1,400 into the equations E and R, we will
have

Eqn.1. E = 2.50x + 2,100 Eqn.2. R = 4x

E = 2.50(1,400) + 2,100 R = 4(1,400)
E = 3,500 + 2,100 R = 5,600
E = 5,600

The resulting values mean that Jose sells 1,400 pieces of siomai, the cost of expense
and the revenue are both equal to ₱5,600. Thus, (1,800, 5.600) is the break-even
point
 PROBLEMS INVOLVING BUYING AND SELLING PRODUCTS

Supplier usually recommends the suggested retail price of an item. However,

because there is a line of other people who are involved in bringing an item to
the hands of the consumer, these middlemen expect their own share of profit
also. Hence, the supplier normally gives them a special discount to grant them
a small room for profit. This discount is referred to as trade discount.

To compute for the TRADE DISCOUNT:

TRADE DISCOUNT = TRADE DISCOUNT RATE x SELLING PRICE

 Example 1.

My mother admired a pair of earrings that her friend was offering for ₱24,000, payable in 6
months. She bargained to be given a discount and her friend agreed to give her 12% if she
pays in cash. How much will my mother have to pay for the pair of earrings?

Solution:

Trade Discount = 0.12 X ₱24, 000

= ₱2,880
Discounted Price = ₱24, 000 – ₱2, 880
= ₱21,120

My mother should pay her friend ₱21,120 in cash to avail of the discount.

Equivalent Solution:

Since trade discount is 12%, customer pays 88% of the selling price, that is
Discounted Price = 0.88 X ₱24,000
= ₱21,120
Example 2.

For Christmas, Paul gave each of his 34 classmates a

shirt with a unique design for their class
remembrance. He found a supplier who gives 8%
discount for a minimum of 25 shirts purchased. The
total cost of the shirts Paul purchased amounted to ₱3,
910. How much was the unit selling price of the
shirts?
Solution.

100% – 8% = 92%

(The total price for the shirts Paul bought was only 92% of their original selling price.)

Original Selling Price = ₱3,910

0.92 discount rice 340
= ₱4,250

Unit Selling Price = ₱4,250

34
= ₱125

The unit selling price of the shirts is ₱125.

Equivalent solution:

Discounted Price per shirt = ₱3,910

34
= ₱115
Paul paid ₱115 per shirt.

Unit Selling Price = ₱115

0.92
= ₱125

The unit selling price is ₱125.

 COMPUTE INTEREST ON MORTGAGE, AMORTIZATION, SERVICES,
UTILITIES, DEPOSITS, AND LOANS.

Example 1.

For 5 years, Mark was able to save ₱350, 000in his savings
account. He invested 40% of it in catering a business with a
friend and is earning a monthly income of 2.5%. His
earnings from that investment go directly to his savings.
How much will his savings be in two years?
Solution:

40% of ₱350, 000 = ₱140, 000 which is the principal amount

2.5% or 0.025= rate of monthly interest;
In one year the interest is = 12 x 0.025 = 0.3

Then;
P = ₱140, 000
r = 3% or 0.3
t = 2years

Formula I = Prt
= ₱140, 000 x 0.3 x 2
= ₱ 84, 000
The remaining savings after his investment
₱350, 000 - ₱140, 000 = ₱210, 000.

Total savings
₱210, 000. + ₱84, 000 = ₱294, 000

Therefore, Mark has a total savings of ₱294, 000 in two more

years.
 Example 2
A loan of ₱173, 000 was repaid after 15 months. If an 8% annual interest was charged,
how much was the repayment check?

Given: P = ₱173, 000

r = 8% or 0.08
t = 15 months = 1.25years
Find: F

Solution
First we have to compute the interest
I = Prt
= ₱173, 000 x 0.08 x 1.25
i= ₱17, 300
Then, add the Principal and the interest

F=P+I
= ₱173, 000 + ₱17, 300
= ₱190, 300
Therefore the repayment check is amounting of ₱190, 300
This Photo by Unknown Author is licensed under CC BY-SA