Question

Break-Even Analysis

Most people intuitively understand that you ‘must at least break-even” and that you must go beyond break-even to earn a profit. For this exercise, create a hypothetical math problem scenario (word problem!) to demonstrate the calculation of break-even point. Set up the scenario and explain the calculation. Using that example, explain what that break-even point means for that business owner. The book example is about nachos, so choose something else that interests you.

Answer 1

Break-even -It is a point which determines the amount of sales needed to achieve a net income of zero. It shows the point when a company's revenue equals total fixed costs plus variable costs, and its fixed costs equal the contribution margin.

Example

A Manufacturing company produces Ball Pens that are printed with the logos of various companies. Each pen is Priced Rs 5.Variable cost of each pen is Rs 2.5 Per Pan and Fixed cost is Rs 250 find ther break even point.

Break even point is a point when there is no porfit no loss or we can say where all fixed and variable cost are set of with no additional revenue.

Break Even Sales = Total Fixed Cost / Contribution Per Unit

or

Break Even Sales =Fixed Cost + Variable Cost

Contribution Per Unit = Sales Price Per Unit-Variable Cost Per Unit

Put Value as per Question

Contribution Per Unit= 5-2.5=2.5

Break Even Sales=250/2.5

Break Even Sales=100

Cross Verification

Break Even Sales =Fixed Cost + Variable Cost

100*5=2.5*100+250

500=500