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Revenue
40,000 –
Break-even
point Total
30,000 –
costs
Dollars
20,000 –
Fixed costs
10,000 –
–
| | | | | |
0 2,000 4,000 6,000 8,000 10,000
Units
Break-Even Analysis
BEPx = break-even point in x = number of units produced
units
BEP$ = break-even point in TR = total revenue = Px
dollars F = fixed costs
P = price per unit (after all V = variable cost per unit
discounts) TC = total costs = F + Vx
TR = TC F
or BEPx =
P-V
Px = F + Vx
Break-Even Analysis
BEPx = break-even point in x = number of units produced
units
BEP$ = break-even point in TR = total revenue = Px
dollars F = fixed costs
P = price per unit (after all V = variable cost per unit
discounts) TC = total costs = F + Vx
BEP$ = BEPx P
= F P Profit = TR - TC
P-V = Px - (F + Vx)
= F
= Px - F - Vx
(P - V)/P
F = (P - V)x - F
=
1 - V/P
Example 1.0
• A manufacturer produces certain items at
a labor cost of P115 each, material cost
P76 each and variable cost of P2.32 each.
If the item has a unit price of P600. how
many number of units must be
manufactured each month for the
manufacturer to break even if the monthly
overhead is P428,000
Example 2.0
• A company which manufactures electric
motors has a production capacity of 200
motors a month. The variable cost are
P150.00 per motor. The average selling
price of the motors is P275.00. Fixed cost
of the company amount to P20,000 per
month which includes taxes. Find the
number of motors that must be sold each
month to break even.
Example 3.0
• A factory engaged in the fabrication of an
automobile part with a production capacity of
700,000 units per year is only operating at 62%
of capacity due to unavailability of the necessary
foreign currency to finance the importation of
their raw materials. The annual income is
P430,000.00. Annual fixed cost are P190,000.00
and variable cost are P0.348 per unit
– What is the current profit or loss?
– What is the break even point?
Example 4.0
• The Asian Transmission Co. makes and
sell certain automotive parts. Present
sales volume is 500,000 units per year at
a selling price of P0.50 per unit. Fixed
expenses total P80,000 per year.
– What is the present total profit for a year
– What is the present break even point in pesos
and in units.
Example 5.0
• The following data for year 2000 are available for
Cagayan Automotive Company which manufactures and
sell a single automotive product line.
– Unit selling price P40.00
– Unit variable cost P20.00
– Unit contribution margin P20.00
– Total Fixed Cost P200,000.00
• What is the breakeven point in units for the current year?
DEPRECIATION
Depreciation
• Depreciation
– Is the reduction of fall in the value of an asset
or physical property during the course of its
working life and due to the passage of time
Types of Depreciation
• Physical Depreciation
– Is due to the reduction of the physical ability
of an equipment or asset to produce result.
• Functional Depreciation
– Is due to the reduction in the demand for the
function that the equipment or asset was
designed to render. This type of depreciation
is often called obsolescence.
Methods of Computing Depreciation