Lecture notes
What is Break-Even?
- Module
- Institution
L earn about break-even and how to calculate it. Includes word problems.
[Show more]
Seller
Follow
kelliyahsmall
Content preview
Break even analysisBreak even determines the minimum number of units t be produced and dsold for a business to
be profitable. Companies will consider their net income. (Net income is the general term for
profit or loss
NI= TR-TC
NI - Net Incone
At break even : NI=0
:tR=tc
The minimum number of units that we look for, is called the break even point. At the break even
long?”, the net income is zero and the total revenue is equal to the total costs.
- net income can be less that zero (negative) and that would mean that the Total Costs
are higher
Total revenue: the total amount made from selling the products
TR=Sx
Total Costs: total variable costs and fixed costs needed to produce the products
TC=TVC+Fc
TVC - total variable costs
FC- fixed cost
Two types of cost
1 total variable cost: variable cost per unit times the number of units
Variable costs include costs directly related to creating the product
Example: labour wages, cost of various parts or materials
VC- variable cost per unit. x- # of units produced
TVC= VCx
2. Fixed costs: costs to run the business, per period cost
Fixed costs are any cost that must be paid whether you prod use products or not
, Examples: administrative salaries, building rent|lease, taxes
Examples:
1. A company sells an item for $70. Their fixed costs are $8000 per month and the
variable cost per unit is $30
- determine the total cost equation
TC=VCx + FC
TC= 30x+ 8000
- determine the profit equation
TR= Sx
TR= 70x
Profit-net income
NI=TR-TC
- determine the profit equation (Met income equation)
NI= TR-TC
=70x-(30x+8000)
= 70x -30x-8000
= NI= 40x-8000
- calculate the number of units needed to be produced and sold per month to break-even
Option 1: at break-even
TR=TC
70x=30x+8000
70x-3px=8000
40x=8000
\40x=\40
200 units
Option 2: NI=0
NI= 40x-8000
0= 40x-8000
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller kelliyahsmall. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £6.31. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
80630 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now