BREAK-EVEN ANALYSIS

Break-even Analysis
- is a calculation of the point at which revenues equal expenses.

Break-even Point
- is the point at which gains equal losses.

Fixed Cost
- the cost necessary to keep the business running regardless of the sales
volume.

Variable Cost
- cost that will increase or decrease in direct relation to the production volume.

Revenue
- is the product of the price and the quantity sold.

FORMULA:

Fixed Cost FC
Quantity = --------------------------------------------------- Q = --------------------
Selling Price - Variable Cost (SP - VC)

Profit = (Selling Price) Quantity - (Fixed Cost+

P = (SP)Q - (FC+ (VC)Q)
(Variable Cost) Quantity)

Example 1:
A firm estimates that the fixed cost of producing a line of footwear is ₱52,000
with a ₱9 variable cost for each pair produced. They want to know:
a) If each pair sells for ₱25, how many pairs must they sell to break-even?
b) If they sell ₱4,000 pairs at ₱25 each, how much money will they make?

Solution:
A) FC ₱52,000
Q = -------------- Q = -------------------------
(SP - VC) ₱16

₱52,000 Q = 3,250 pairs

Q = -----------------------------
(₱25 - ₱9)
 B) P = (SP)Q - (FC + (VC)Q)
P = (₱25) 4,000 - (₱52,000 + (₱9) 4,000)
P = ₱100,000 - (₱52,000 + (₱36,000)
P = ₱100,000 - ₱88,000
P = ₱12,000

Example 2:
Sales Price: ₱3oo
Variable Cost: ₱200
Fixed Cost: ₱50,000

Solution:
FC
Q = -----------------
(SP - VC)

₱50,000
Q = ---------------------------
(₱300 - ₱200)

₱50,000
Q = --------------------------
₱100

Q = 500

Prepared by:
Trixie Nazareno ＆ Jea Dyn Fernandez
11-Pythagoras