Question

View "Pricing and Breakeven Analysis." A break-even analysis can be used to determine the amount of sales volume a business needs to start making a profit. List the formula used to conduct a break-even analysis and explain each component. Provide a real-world example of how the break-even analysis and formula could be applied. In replies to peers, discuss other marketing math methods that could be employed by the business as it tracks profitability.

Answer 1

Break-even analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs. Analyzing different price levels relating to various levels of demand a business uses break-even analysis to determine what level of sales are necessary to cover the company's total fixed costs.

he basic formula for break-even analysis is driven by dividing the total fixed costs of production by the contribution per unit (price per unit less the variable costs).

formula:

Break even quantity = Fixed costs / (Sales price per unit – Variable cost per unit)

Where:

• Fixed costs are costs that do not change with varying output (e.g., salary, rent, building machinery).
• Sales price per unit is the selling price (unit selling price) per unit.
• Variable cost per unit is the variable costs incurred to create a unit.

breakeven sales= fixed cost / p/v ratio

Break-even analysis is not only used by businesses. Suppose an options trader buys a 50-strike call for $1.00 premium when the underlying is trading at $46. A break-even analysis will show that the price of the underlying must reach $51 before they break-even on the trade. While the call will be in-the-money (ITM) at any price trading above $50, the trader will still need to recoup the option premium of $1 which they originally paid to buy the option.