ENGINEERING ECONOMY

BREAK-EVEN ANALYSIS
Break-even point (BEP) is the point at which
cost or expenses and revenue are equal

Prepared by: CAMILO B. CADELIñA, CIE

ECONOMY STUDIES METHODS – BREAKEVEN

1 A leather gloves manufacturer produces certain items at a labor cost

of P500, materials cost per unit is P150, variable cost of P50.00 each.
If the gloves has a selling price of P1,500 per pair, how many units
must be manufactured each month for the company to break-even if
the monthly overhead is P500,000

ANSWER : X = 625 pairs

ECONOMY STUDIES METHODS – BREAKEVEN

2 Baysports Manufacturing produces m&m chocolate dispensers at a

labor cost of P280 each, material cost of P100 each and variable cost
of P4.50 each. If the item has a unit price of P900, how many units
must be manufactured each month for the company to break-even if
the monthly overhead is P450,000.

ANSWER : X = 873 dispensers

BREAKEVEN

3 A pharmaceutical firm manufactures a whitening pill at a labor cost of

P500 and material cost of P300. The fixed charges on the company
are P2M a month and the variable costs are P200 per pill. Royalty to
the movie actress promoting the product is P600 per pill sold. If the
whitening pill can be sold for P2,500 each, how many pills must be
produced each month for the firm to break-even?

ANSWER : X = 2,223 whitening pills

BREAKEVEN
4 Nicholea Water LLC dispenses its product Nature’s Pure Water via vending
machines with most current locations at food markets and pharmacy or chemist
stores. The average monthly fixed cost per site is $900, while each gallon costs
$0.18 to purify and sells for $0.30.
(a) Determine the monthly sales volume needed to break even.
(b) Nicholea’s president is negotiating for a sole-source contract with a
municipal government where several sites will dispense larger amounts. The
fixed cost and purification costs will be the same, but the sales price per
gallon will be $0.30 for the first 5000 gallons per month and $0.20 for all
above this threshold level. Determine the monthly breakeven volume at each
site.
ANSWER : a. 7,500
b. 15,000
ECONOMY STUDIES METHODS – BREAKEVEN
5 A small aerospace company is evaluating two alternatives: the purchase of an automatic feed
machine and a manual feed machine for a finishing process. The auto-feed machine has an
initial cost of $23,000, an estimated salvage value of $4000, and a predicted life of 10 years.
One person will operate the machine at a rate of $24 per hour. The expected output is 8 tons
per hour. Annual maintenance and operating cost is expected to be $3500. The alternative
manual feed machine has a first cost of $8000, no expected salvage value, a 5-year life, and
an output of 6 tons per hour. However, three workers will be required at $12 per hour each.
The machine will have an annual maintenance and operation cost of $1500. All projects are
expected to generate a return of 10% per year. How many tons per year must be finished in
order to justify the higher purchase cost of the auto-feed machine?.

ANSWER : BEP = 1,127 tons

“If the output is expected to exceed 1127
purchase the auto-feed machine”