MANAGEMENT

SCIENCE
Break-Even Analysis
Assignment Number 1

ROSAL, IMEE FRANCE R.

MWF 5:00-8:00 PM
1BSA-4

SIR JOSEPH ESTRADA

PROFESSOR

Please answer the following questions and submit on the deadline date.
1. Define breakeven analysis.

For any business, it is necessary to work out their break-even purpose to assist them
within the decision-making method. Break-even analysis is a concept used when a business
owner or a company do not recognize/realizes a profit and loss. If the company reach the point
where the profit/loss is equal for the period by the sales revenue and expenses incurred that is
when the company breaks even. And this analysis uses and gathers accounting data in order to
know the break-even point of the company.

2. What is fixed cost?

Fixed costs are expense that does not shift with an increase or decrease within a relevant
rage in the amount of goods and services produced or sold. Fixed cost is not based on volume or
operation, so it is less controllable. In other words, fixed costs are locked in place unless
operations stay within a certain size. All these expenses are completely independent from
production volume. Fixed costs are expenses of any specific business activity that must be paid
by a company and predetermined rate based on company necessities. A few examples of fixed
costs include rent, insurance, and property taxes.

3. What is variable cost?

Variable cost can be compared with fixed cost because variable costs are expenses that
vary in proportion to the volume and operation of goods or services produced or sold while fixed
cost is not based on the volume of an activity. In other words, they are expenses that change
depending on the volume and operation of the business. If the volume of business increases the
cost increase, and the costs decrease as the volume of business decreases. A few examples of
variable costs include the costs of raw materials and packaging.

4. What is the importance of sensitivity analysis?

Sensitivity analysis is also known as a what-if analysis and commonly used by financial
analysts and economists. Sensitivity analysis is a study on how much changes in those variables
will vary the dependent variable under a given set of assumptions. In other words, it is an
analysis that study how various sources of uncertainty in a mathematical model contribute to the
overall uncertainty.

EXAMPLE OF BREAK-EVEN ANALYSIS

 In this scenario we need to determine what is the possible selling price in order to break-
even using the what-if analysis or goal seek the selling price of 125 increases to 150. Thus, 150
is the BEP to make the profit/loss zero.
 In this scenario we must determine what is the BEP if we change the unit sold. Using
again the goal seek the unit sold increases from 3000 to 4875. Therefore, the BEP is 4875 to
make the profit/loss equal to zero.

The scenario here is to change the cost per unit to reach the point and breaks even. If we
use the goal seek the cost per unit decreases from 85 to 60. Thus, 60 is the possible value for the
profit/loss.
 Change in fixed cost in order to break-even the fixed cost needs to be lower than the initial
projection. In the image above the fixed cost needs to be at 120,000 for the business to break-
even.

The graphs presented above is created by CalcXML an online break-even calculator that help
you to analyse your financial need and determine if you may make a profit. CalcXML, (2019).
Breakeven Analysis Calculator. https://www.calcxml.com/calculators/breakeven-analysis.

REFERENCES:
Hayes, Adam, (2020). Break-Even Analysis.
https://www.investopedia.com/terms/b/breakevenanalysis.asp
Kenton, Will, (2020). Fixed Cost. https://www.investopedia.com/terms/f/fixedcost.asp
Kenton, Will, (2020). Variable Cost. https://www.investopedia.com/terms/v/variablecost.asp
Kenton, Will, (2020). Sensitivity Analysis
https://www.investopedia.com/terms/s/sensitivityanalysis.asp
https://www.calcxml.com/calculators/breakeven-analysis.