BREAKEVEN ANALYSIS

REVENUES AND TOTAL COSTS

Revenue

Breakeven Point is where the ____________ and Total Cost lines meet

Breakeven Point

Total Costs

Revenue = Cost so Net Income is zero

REVENUES AND TOTAL COSTS

Then Total ________ are more than (above) Revenue Net Income = loss

Revenue Total Costs

When Sales are less than Breakeven

Net Income equals Revenue minus Cost

REVENUES AND TOTAL COSTS

When Sales are more than Breakeven Point

Revenue Total Costs

then the Revenue line is higher than Total Cost line, so Net Income is a profit
Net Income equals ____________ minus Cost

CONTRIBUTION
Unit Contribution = Price - Variable Cost per unit

Contribution Margin =

(Sales - Total Variable Costs) Sales

OR

Use the Units Contribution (top) formula when the problem is in units, and the Contribution ________ (bottom) formula when the problem is in Total Sales and Total Variable Costs

BE = Fixed Cost / Contribution

Breakeven Units = Fixed Costs (Price - Variable Cost)

Fixed Costs Breakeven Sales = (Sales-Variable Cost)Sales

Use the BE Units (top) formula when the problem is in units, and the BE Sales (bottom) formula when the problem is in Total Sales and Total ____________ Costs

OR

BREAKEVEN UNITS
Breakeven Units = Fixed Costs (Price - Variable Cost)

Example: Acme Manufacturings Fixed ___________ are $120,000 per period, and the price per Roadrunner Trap is $25 while the Variable Cost per trap is $20 Breakeven Units = $120,000 ($25 - $20) Breakeven Units = $120,000 $5 Breakeven Units = 24,000 Roadrunner Traps

BREAKEVEN SALES
Fixed Costs Breakeven Sales = (Sales-Variable Cost)Sales
Example: Acme Manufacturings _______ Costs are $120,000 per period, while the sales are $750,000 and variable costs are $600,000 $120,000 ($750,000 - $600,000)$750,000 $120,000 ($150,000$750,000) $120,000 .200 = $600,000 Sales

Breakeven Sales = Breakeven Sales = Breakeven Sales =

Example: Acme Manufacturings Fixed Costs are $120,000 per period, and the price per Roadrunner Trap is $25 while the Variable Cost per trap is $20 Acme sold 30,000 traps for a total of $750,000 in sales and $600,000 in _____________ costs

SUMMARY OF BE POINT

Breakeven Units =

Fixed Costs (Price - Variable Cost)

Breakeven Units = 24,000 Roadrunner Traps

Fixed Costs Breakeven Sales = (Sales-Variable Cost)Sales

Breakeven Sales = $600,000 24,000 traps at $25 price each equals $600,000

Net Income = Q*Price - Q*VC - Fixed Cost Q=Quantity of units sold & VC=Variable Cost per unit

NET INCOME

Variable Cost Percentage = (Variable Cost Sales) Net Income = Sales - (VC% * Sales) - Fixed Cost Use the Units (top) formula when the problem gives units, and the Sales (bottom) formulas when the problem gives Total ______ and Total Variable Costs

OR
AND

Some people use Y to stand for net income

PREDICTION
It was established earlier that the Breakeven Point for Acme is 24,000 units If Acme sells 32,000 traps, will the Net Income be a profit or a loss?

Example: Acme Manufacturings Fixed Costs are $120,000 per period, and the price per Roadrunner Trap is $25 while the Variable Cost per trap is $20 Compute the Net Income if Acme sells 32,000 traps Net Income = Q*Price - Q*Variable Cost - Fixed ______ Net Income = 32,000*$25 - 32,000*$20 - $120,000 Net Income = $800,000 - $640,000 - $120,000

Net Income = Y

Y = $40,000

PREDICTION
It was established earlier that the Breakeven Point for Acme is $600,000 of sales If Acme sells $800,000 of traps, will the Net Income be a profit or a loss?

Example: Acme Manufacturings Fixed Costs are $120,000 per period, and last year Acme sold 30,000 traps for a total of $750,000 in sales and $600,000 in variable costs Compute projected Y if projected sales = $800,000 Variable Cost Percentage = (VCSales)
last year sales

Y = Net Income

AND Net Income = Sales - (VC% * Sales) - _______ Cost Variable Cost %= $600,000 $750,000 = .800 VC% Net Income = $800,000 - (.800*$800,000) - 120,000 Net Income = $800,000 - $640,000 - 120,000

Projected Y = $40,000

Example: Acme Manufacturings Fixed Costs are $120,000 per period, and the price per Roadrunner Trap is $25 while the Variable Cost per trap is $20; and last year Acme sold 30,000 traps for a total of $750,000 in sales and $600,000 in variable costs Compute the projected Net Income if next year Acme sells 32,000 traps for total sales of $800,000 Net Income = Q*Price - Q*Variable Cost - Fixed Cost Net Income = $800,000 - $640,000 - $120,000 Net Income = $40,000 Variable Cost Percentage = (VCSales) last year sales AND Net Income = Sales - (VC% * Sales) - Fixed ______ Net Income = $800,000 - (.800*$800,000) - 120,000 Net Income = $40,000

Summary of Net Income

UNITS

SUMMARY

Total Sales&Costs
Breakeven Sales Fixed Costs (Sales-Variable Cost)Sales

Breakeven Units Fixed Costs (Price - Variable Cost) Projected Income Projected Quantity = Q Q*P - Q*VC - FC = Y

Projected Income Last years numbers VC% = Variable CostSales Projected Sales & FC S - (VC% * S) - FC = Y

Use Units (left) formulas when problem is in units, and Total Sales&Costs (right) formulas when the problem gives Total Sales and Total Variable Costs