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What is a break-even
analysis?
Breakeven Analysis- A
decision-making aid that
enables a manager to
determine whether a
particular volume of sales
will result in losses or
profits
Breakeven formula
P(X) = f + V(X)
F = fixed costs
V = variable costs per
unit
X = volume of output (in
units)
P = price per unit
X = F /( P V)
This formula says that the
breakeven point is where the
number of sales needed to
make the cost equal to the
revenue.
Example
Lets say you own a business selling
burgers
It costs $1.00 to make one burger
Thats your V or Variable cost
You sell each burger for $2.80
Thats your P or price per unit
Your cost for rent, utilities,
overhead, etc... is $100,000 per
month
That's your F or fixed cost
Example cont.
V = $1.00 P = $2.80
F = $100,000
X = F /( P V)
X = 100,000 / ( 2.80 - 1 )
X = 100,000 / ( 1.80 )
X = 55,555
To breakeven you would
need to sell 55,555 burgers
Problem
Try out this problem for your self
You own a lemonade stand
It costs you $0.05 to make cup of
lemonade
You sell your lemonade for $0.25
It cost you $50.00 to make the
stand
How many cups of lemonade do
you have to sell to breakeven?
Solve now
Answer
X = F /( P V)
X = 50 / ( .25 - .05 )
X = 50/ ( .20 )
X =250
You would need to sell 250
cups of lemonade to
breakeven.
Conclusion
A Breakeven Analysis is a simple tool
to use to determine if you have priced
your product correctly
A Breakeven Analysis helps you
calculate how much you need to sell
before you begin to make a profit. You
can also see how fixed costs, price,
volume, and other factors affect your
net profit.
Reference page
A Framework for Management
Gary Dessler
http://www.tutor2u.net/business/
production/break_even.htm
3/1/06
http://connection.cwru.edu/mbac4
24/breakeven/BreakEven.html
3/1/06
http://www.dinkytown.net/java/Br
eakEven.html
3/1/06
http://office.microsoft.com/en-us
/templates/TC011165121033.aspx
3/1/06