The break-even analysis

Lect. univ. dr. Costin Ciora

costin.ciora@cig.ase.ro

Break Even Analysis

A company can reach performance by reaching break-even. As the word tells us,
at this point the company breaks its current results to even,
where

Revenues = Costs

Profit = 0

Break Even Analysis

Expenses (Costs)

REVENUES
Fixed
Expenses

Variable
Expenses

Break Even Analysis

Expenses (Costs)
Quantity x Unit costs

REVENUES
Quantity x Unit Price

Fixed
Expenses

Variable
Expenses

Fixed

Quantity x Variable
unit costs
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Break Even Analysis

Case study: Mobile producer
Revenues: number of mobile sold x unit price

Break Even Analysis

Total expenses= Fixed expenses + Variable expenses
Fixed expenses: rents, management salaries, advertising do not
depend on the volume of production
Variable expenses (direct productive): components, , raw material,
workers salaries depend on the volume of production

Break Even Analysis

Break Even Analysis

Break-even (no. of units) =

Break Even Analysis

Break-even (no. of units) =

Unit price = 310$

Variable unit price = 220$
Fixed expenses = 3.447.000$

Calculate break-even point

Break Even Analysis

3,447,000
Break-even (no. of units) =
310220

38,300
Revenues at break-even point= 38,300 units x 310$ = 11,873,000$
Fixed expenses
= 3,447,000 $
Variable expenses = 38,300 units x 220$
= 8,426,000$

Profit

=0

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Break Even Analysis

We consider the maximum production capacity to be
45,000 units

Break-even/Maximum production capacity=

38,300/45,000 =

85,11%

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Break Even Analysis

We consider the maximum production capacity to be
45,000 units

Maximum Revenues = 45,000 units x 310$= 13,950,000 $

Fixed expenses
= 3,450,000$
Variable expenses = 45,000 units x 220$ = 9,900,000$
Maximum profit =

600,000$

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Questions?

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Break Even Analysis

If we want to obtain a profit of 450,000$, how many

units to we need to sell?

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Break Even Analysis

Revenues Total expenses = 450,000$

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Break Even Analysis

Revenues Total expenses = 450,000$

(q x p ) - (Fexp + q x vc) = 450,000$

q x(p-vc) Fexp = 450,000$

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Break Even Analysis

Revenues Total expenses = 450,000$

(q x p ) - (Fexp + q x vc) = 450,000$

q x(p-vc) Fexp = 450,000$
qx(310$-220$)=450,000$+3,447,000$
q x 90$ = 3,897,000$

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Break Even Analysis

Revenues Total expenses = 450,000$

(q x p ) - (Fexp + q x vc) = 450,000$

q x(p-vc) Fexp = 450,000$
qx(310$-220$)=450,000$+3,447,000$
q x 90$ = 3,897,000$
q = 43,300 units
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Break Even Analysis

No. of units for expected profit

No. of units for expected profit

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Break Even Analysis

No. of units for expected profit

No. of units for expected profit

3,447,000+450,000

310220

= 43,300 units

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Break Even Analysis

38,300 units is the number of units needed to reach break-even

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Break Even Analysis

38,300 units is the number of units needed to reach break-even

45,000 units is the maximum production capacity

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Break Even Analysis

38,300 units is the number of units needed to reach break-even

45,000 units is the maximum production capacity
43,300 units is the number of units needed to be sold to reach a PROFIT of
450,000$

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Break Even Analysis

38,300 units is the number of units needed to reach break-even

45,000 units is the maximum production capacity
43,300 units is the number of units needed to be sold to reach a PROFIT of
450,000$
600,000$ is the maximum profit

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Break Even Analysis

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Thank you!
Questions?

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