Break-even Analysis

4.2 Break-even Analysis

 Break-even Analysis used to determine how

much sales volume a business needs just to
cover costs
Cost amount spent on producing x units of a
product
Revenue amount received from selling x
units of the product
Profit amount gained if revenue is greater
than the cost
4.2 Break-even Analysis

Cost function: yC = C(x)

C(x) = vx + F
F is the fixed cost (overhead expenses like rent,
machineries, interest on loans)
v is the variable cost per unit (the cost of
producing each unit of the product

Examples:
C(x) 10 2x

yC 0.65x 10,000

4.2 Break-even Analysis

 Revenue function: yR = R(x)

R(x) = px
p is the selling price per unit
If the selling price depends on the quantity
demanded, we write and p = D(x) and
R(x) = xD(x).

Examples:
R(x) 3x

y R 0.88x

4.2 Break-even Analysis

Break-even point where the cost and revenue

functions intersect at a point; where cost
equals revenue
C(x) R(x)

4.2 Break-even Analysis

 Loss occurs when the firm makes and sells

fewer units than its break-even quantity
Profit occurs when the firm makes and sells
more units than its break-even quantity
Profit function:
P(x) R(x) C(x)

4.2 Break-even Analysis

1. Given the cost function C(x) = 10 + 2x and

revenue function R(x) = 3x, find the breakeven quantity and price.
C(x) R(x)
10 2x 3x
x 10
30
R(10) 3(10)

b.e. quantity: 10 units

b.e. price: Php30

4.2 Break-even Analysis

3. Given the cost function C(x) = 0.13x + 750

and revenue function R(x) = 0.88x, find the
break-even quantity and price.
C(x) R(x)
0.13x 750 0.88x
x 1,000
R(1,000)
0.88(1,000) 880

b.e. quantity: 1,000 units

b.e. price: Php880

4.2 Break-even Analysis

11. An oven manufacturer claims that the total

cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
a)What is the fixed cost?
b)What is the cost of producing 50 ovens?
c) Graph the cost function C(x).

4.2 Break-even Analysis

11. An oven manufacturer claims that the total

cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
a)What is the fixed cost?
F Php100,000

4.2 Break-even Analysis

11. An oven manufacturer claims that the total

cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
b)What is the cost of producing 50 ovens?
C(50) 100,000 2,000(50) Php200,000

4.2 Break-even Analysis

11. An oven manufacturer claims that the total

cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
c) Graph the cost function C(x).

4.2 Break-even Analysis

13. A certain car rental agency charges Php800 a

day plus ten pesos per kilometer. A competitor
charges 12 pesos per kilometer. Which one
offers the better deal?
C1(x) C2 (x)
800 10x 12x
x 400

C1(x) 800 10x

C2 (x) 12x
C1(399) Php4,790

C2 (399) Php4,788

Competitor offers better deal if distance is less than 400 kms

4.2 Break-even Analysis

15. A food repacking company estimates sales

figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
a)find the cost, revenue, and profit functions.
b)what is the break-even sales volume?
c) find the corresponding profit figures if the
actual sales will be as estimated.
4.2 Break-even Analysis

15. A food repacking company estimates sales

figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
a)find the cost, revenue, and profit functions.
C(x) 4,000,000 215x
R(x) 375x
P(x) 160x 4,000,000
4.2 Break-even Analysis

15. A food repacking company estimates sales

figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
b)what is the break-even sales volume?
C(x) R(x)
4,000,000 215x 375x
x 25,000 units

4.2 Break-even Analysis

15. A food repacking company estimates sales

figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
c) find the corresponding profit figures if the
actual sales will be as estimated.
R(x) 375x 15.5M

x 41,334

P(41,334) 160(41,334) 4,000,000

Php2,613,440

4.2 Break-even Analysis

17. A manufacturer can sell a certain health

supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
a)How many units must the manufacturer sell to
break even?
b)What is the manufacturer's profit or loss if 100
units are sold?
c) How many units must be sold for the
manufacturer to realize a profit of Php12,500?
4.2 Break-even Analysis

17. A manufacturer can sell a certain health

supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
a)How many units must the manufacturer sell to
break even?
C(x) R(x)
440x 75,000 1,100x
x 114 units

4.2 Break-even Analysis

17. A manufacturer can sell a certain health

supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
b)What is the manufacturer's profit or loss if 100
units are sold?
P(x) R(x) C(x) 660x 75,000
P(100) 660(100) 75,000 9,000
This is a loss of Php
9,000.

4.2 Break-even Analysis

17. A manufacturer can sell a certain health

supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
c) How many units must be sold for the
manufacturer to realize a profit of Php12,500?
12,500 660x 75,000
x 133 units

4.2 Break-even Analysis

19. As part of their course requirement, a group

of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
a)How many pieces must the students sell to
break even?
b)How many pieces must the students sell to
make a profit of Php5,000?
4.2 Break-even Analysis

19. As part of their course requirement, a group

of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
a)How many pieces must the students sell to
break even?
C(x) R(x)
25x 700 45x
x 35 pieces

4.2 Break-even Analysis

19. As part of their course requirement, a group

of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
b)How many pieces must the students sell to
make a profit of Php5,000?
P(x) R(x) C(x) 20x 700
5,000 20x 700

x 285 pieces
4.2 Break-even Analysis