Question

Explain what break-even point is and what the formulae is in general terms. Please answer in 350 words and only in word format. Please dont copy paste the explanation from wikipedia or investopedia.

And also Please provide explanation of this calculation given below in details.

Unit Price =$100.00

Unit Variable Cost =$30.00

Fixed Cost=$21,000,000

Unit CM=$100 -$30=$70

Profit=70*Q-21,000,000

At Breakeven, Q =21,000,000/70 =300,000

Thanks

Answer 1

Answer:-Break Even Point:-It is a level of activity at which there is neither profit or loss. In general, the break-even point is the point at which revenues equal expenses. In investing, the break-even point is the point at which gains equal losses.

The breakeven point is the sales volume at which a entity earns exactly no money. The breakeven point is useful in the following situations:

1)-To determine the amount of remaining capacity after the breakeven point is reached, which shows the maximum amount of profit that can be generated.

2)-To determine the impact on profit if automation (a fixed cost) replaces labor (a variable cost).

3)-To determine the change in profits if product prices are altered.

4)-To determine the amount of losses that could be sustained if the business suffers a sales downturn.

Formula to calculate Break Even Point in dollar:-Fixed costs/Contribution margin ratio

Formula to calculate Break Even Point in units:- Fixed costs/Contribution margin per unit

Where:- Contribution margin per unit:-Selling price per unit-Variable cost per unit

Contribution margin ratio= (Contribution margin per unit/ Selling price per unit)*100

Unit Price =$100

Unit Variable Cost =$30

Fixed Cost=$21000000

Unit CM=$100 -$30=$70

Break even point in units =$2100000/$70 per unit =300000 units

Break even point in dollar =$2100000/70% =$3000000

At break even point profit =zero