ITTI `S

EGG WHOLESALER AND RETAILER

STORE
BREAK - EVEN POINT
ANALYSIS:
LINEAR fUNCTIONS

BREAK EVEN POINT
(BEP)
the simplest quantitative model
used by decision makers which
concerned the interrelationship of
cost, volume and profit
common point between the total
revenue and total cost
total revenue equals the total cost
the company has no profit but has
no loss also

also referred to as Cost
Volume Analysis
is the determination of the
number of units that must be
produced and add to equate sale
with total cost
the point at which your product
stops costing you money to
produce and sell, and starts to
generate a profit for your
company.

BREAK-EVEN ANALYSIS DEPENDS
ON THE FOLLOWING VARIABLES:
Selling price per Unit
Total Fixed Cost
Variable Unit Cost
Forecasted Net Profit
SELLING PRICE PER UNIT
The amount of money charged to the customer
for each unit of a product or service.
TOTAL FIXED COST
constant expenditures without regards to the
number of units produced like: rent expense,
depreciation expense, factory supervisory
salary. The sum of all costs required to
produce the first unit of a product. This amount
does not vary as production increases or
decreases, until new capital expenditures are
needed
VARIABLE COST
Variable Unit Cost
Costs that vary directly with the production of
one additional unit. Examples of this are
utilities, wages, raw materials, and packaging.
Total Variable Cost
The product of expected unit sales and variable
unit cost, i.e., expected unit sales times the
variable unit cost.

COMBINATION COST
costs that are a combination of fixed and variable: a
certain minimum level will be incurred regardless of
your sales levels, but the costs rise as your volume
increases. (ex. phone bill)
Strictly speaking, these costs should be separated
into their fixed and variable components, but that
may be more trouble than it's worth for a small
business. To simplify things, just decide which type
of cost (fixed or variable) is the most important for
the particular item, and then classify the whole item
according to the more important characteristic. For
example, in a telemarketing business, if your phone
call volume charges are normally greater than your
line access charges, you'd classify the entire bill as
variable.

FORECASTED NET PROFIT
Total revenue minus total cost

Total Revenue (TR)
the product of the selling price per unit and
number of units sold

Total Cost (TC)
sum of fixed cost (FC) and variable cost (VC)

COMPONENT OF BREAK EVEN ANALYSIS
1. Volume
level of production by a company, which is
expressed as the number of units (quantity)
produced and sold
2. Profit
the difference between total Sales and total cost
or the income generated by the sale of product
3. Costs
usual expenditures that must be taken into
account in order to determine profit

FORMULA
TR = Price per unit x units sold
TC = FC + VC
Profit = TR TC
TR = TC OR TR TC = 0 ,


* Profit = 0 at break even point

BEP GRAPH
MARKET EQUILIBRIUM GRAPH


EXERCISES
1. Consider a firm that buys units for Php 10.00 and sells
them for Php 15.00. There are no other variable cost.
Fixed costs are at Php 6000, Use the break-even formula
to determine the following:

a) TR, TC and profit functions
b) Sales volume when profit is Php 8000
c) Profit when sales are 500 units
d) The break-even quantity and revenue
e) The amount by which the variable cost per unit has to be
decreased in order to break even at 500 units. (selling
price and FC remains)
f) The new fixed cost in order to break even at 800 units.
Selling price cost remains constant.
g) The new selling price per unit, to break even at 500 units,
if VC and TC are constant.

Given:

Variable Cost = 10 per unit
Selling price = 15 per unit
Fixed Cost = 6000

a. TR = 15x
TC = 10x + 6000
Profit = 15x (10x +
6000)
= 15x 10x
6000
Profit = 5x 6000

b. Profit = 8000
Profit = 5x 6000
8000 = 5x 6000
-5x = -6000 8000
-5x/-5 = -14000/-5
x = 2800 units

c.
x = 500
Profit = 5 (500) 6000
= 2500 6000
= Php 3500 loss

d. TR = TC
15x = 10x + 6000
15x-10x = 6000
5x/5 = 6000/5
x = 1200 units (BEP
Quantity)



TR = 15x
= 15 (1200)
TR = Php 18000 BEP
revenue

e. Let y = new variable
cost
VC = 500y
Original TC = 10x +
6000
New TC = 500y + 6000

TR = TC
15 (500) = 500y + 6000
7500 = 500y + 6000
-500y = 6000 7500
-500y/-500 = -1500/-500
y = 3 new variable cost
per unit
*Since the old VC is 10
per unit and the new
VC is 3 so it
decreases 7 per unit

f. Given:
BEP quantity = 800
let z = fixed cost

TR = TC
15 (800) = 10 (800) + z
-z/-1 = (8000-12000)/-1
z = 4000 fixed cost

or

TC = TR
10 (800) + z = 15 (800)
8000 + z = 12000
z = 12000 8000
z = 4000

g. Given:
BEP quantity = 500 unit
Let p = selling price

TR = TC
500p = 10 (500) + 6000
500p/500 = 11000/500
p = Php 22.00 selling price per unit

EXERCISES
2. A business firm produces and sells a particular product.
Variable cost is Php 30.00 per unit. Selling price is Php
40.00 per unit. Fixed cost is Php 60000. Determine the
following:
a) Profit when sales are 10000 units.
b) The break-even point quantity and revenue.
c) Sales when profits are at Php 9000.
d) The amount by which fixed cost will have to be decreased
or increased, to allow the firm to break even at sales
volume of 500 units. VC and selling price per unit remain
constant.
e) The volume of sales to cover the fixed cost.
f) Suppose that the firm wants to break even at a lower
number of units, assuming that FC and VC remain
constant, how is the selling price affected?
g) Find the TC when sales are 500 units.

Given:

VC = Php 30.00 per unit
SP = Php 40.00 per unit
TC = Php 60000

a. x = 10000 units

Profit = 10x 60000
= 10 (10000) 60000
Profit = 40000




Functions:
TC = 30x + 60000
TR = 40x
Profit = 40x (30x + 60000)
= 40x 30x 60000
Profit = 10x 60000

b.
TR = TC
40x = 30x +
60000
10x/10 = 60000/10
x = 6000
(BEP
quantity )

TR = 40 (6000)
TR = Php 240000
BEP revenue


c.
Given:
Profit = 9000

Profit = 10x 60000
9000 = 10x 60000
-10x = -60000 9000
-10x/-10 = -69000/-10
x = 6900 units sold

TR = 40 (6900)
TR = 276000 for
6900 units sold

d. Given: BEP quantity = 500 units
Let y= fixed cost

Solution: TC=TR
30(500) + y = 40(500)
15000 + y = 20000
y = 20000 - 15000
y = 5000 new fixed cost.

*Since the old FC is 60000,and the new FC is 5000
so there is a decrease of 55000.
e. TR=FC
40x = 60000
40x/40 = 60000/40
x = 1500 units of
sale to cover the
fixed cost

f. If the firm wants
to break even at a
lower number of
units, but the FC
and VC remain
constant. The
selling price
should be
increased.
TR = TC
SP x X = FC + VC
3. A factory sells a particular product at Php 0.80 per
unit. The variable cost is Php 0.60 per unit. The
total fixed cost is Php 12000. Determine the
following:

a) The break-even point in units of sales.
b) Profit when sales are 10000 units.
c) TC when sales are 5000 units.
d) The amount by which the selling price will have to
increase or decrease for the firm to break even at
4000 units. Assume all costs remain the constant.
e) The amount by which the fixed cost will have to
decrease in order for the firm to break even at a
sales volume of 4000 units. Assume selling price
and variable cost remain the same.

Given:

SP = Php .80 per unit
VC = Php .60 per unit
FC = Php 12000

A. BEP
TR = TC
.80x = .60x + 12000
.80x - .60x = 12000
.20x/.20 = 12000/.20
x = 60000 BEP
quantity

TR = .80x
= .80 (60000)
TR = 48000 BEP
revenue

b.
Given: Unit sold
10000

Profit = .20x - 12000
= .20 (10000) -
12000
= 10000 loss

c.
Given: Unit sold 5000

TC = .60x + 12000
= .60(5000) + 12000
TC = 15000

d.
Given: BEP quantity = 4000
let S = selling price

TR = TC
4000S = .60(4000) + 12000
4000S = 2400 + 12000
4000S/4000 = 14400/4000
S = 3.60 new selling price to break even of 4000

e.
Given: BEP quantity = 4000 units
let z = fixed cost

TC = TR
.60x + z = .80x
.60(4000) + z = .80(4000)
2400 + z = 3200
z = 3200 - 2400
z = 800 new fixed cost to break
even of 4000 units

* Since the old FC is
12000,therefore there
should be a decrease
of 11200 to have a
break even quantity of
4000.

4. A manufacturer sells his product at Php 10.00
per unit.

a) Find the total revenue if the volume sales is
1800.
b) If fixed cost is Php 3000, represent the total cost
when the variable cost per unit is Php 5.00
c) Supposed that the variable cost per unit is 70%
of the selling price. Represent the total cost
when fixed cost is Php 5000.
d) If variable cost is 20% of the selling price and
the fixed cost is Php 1000, find the break-even
point.

Given: SP = Php 10
per unit

Solution:
a. Given: Unit Sold =
1800
Solution:
TR = 10x
= 10 (1800)
= 18000




b. Given: FC = 3000
VC = 5 per
unit
Solution:
TC = 5x + 3000

c.
Given: FC = 5000

VC = 70% of SP
= 70% (10)
= 7
Solution:
TC = 7x + 5000

d. Given: VC = 20% of SP
= 20% (10)
= 2 per unit
FC = 1000

Solution:
TR = TC
10x = 2x + 1000
10x - 2x = 1000
8x/8 = 1000/8
x = 125


TR = 10x
= 10 (125)
= 1250 BEP revenue
if BEP quantity of 125
where VC is 20% of
SP and FC is

equal to 1000