Break-Even Point

Analysis
By
Sheryl B. Satorre
-----
TM 714 Financial Management
Outline:
Definition
Basic Concepts

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What it can be used for?
BEP Formula

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BEP Chart
BEP Sample Problems
Limitations
Conclusion
References
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 Break-Even Point Analysis

A decision-making aid that enables a

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manager to determine whether a

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particular volume of sales will result in
losses or profits

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 Basic Concepts
Variable costs are costs that change with
changes in production levels or sales. Examples
include: Costs of materials used in the

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production of the goods

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Fixed costs remain roughly the same regardless
of sales/output levels. Examples include: Rent,
Insurance and Wages
Revenue is the total income received.
Profit is the money you have after subtracting
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fixed and variable cost from revenue.
 What it can be used for?
Monthly expenses- use it to see if your
income is more then your expenses

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Determine minimum price product can be
sold for

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Determine optimum price product can be
sold for
Calculate effects of marketing programs on
price
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The Break-Even Point (BEP)
Formula

P(X) = F + V(X)

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Presented by: SB Satorre
Where: Revenue Total Costs
F = fixed costs
V = variable costs per unit
X = volume of output (in units)
P = price per unit

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 The Break-Even Point
Formula (cont.)
If we rearrange the formula where the breakeven is X then the

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formula look like this

X = F /( P V)

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Break-Event
Point
This formula says that the breakeven point is where the number
of sales needed to make the cost equal to the revenue.
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 Break-Even Point Chart

Presented by: SB Satorre 7/11/17

 Sample Problem # 1
Lets say you own a business selling burgers

It costs Php 7.00 to make one burger

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Thats your V or Variable cost!

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You sell each burger for Php 12.50.
Thats your P or price per unit!

Your cost for rent, utilities, overhead, etc... is

Php 100,000 per month.
That's your F or fixed cost! 9
 Answer
Given: V = Php 7 P = Php 12.50
F = Php 100,000
Solution:

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X = F /( P V)

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X = 100,000 / ( 12.50 - 7 )
X = 100,000 / ( 5.5 )
X = 18, 181.818
X 18, 182

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To breakeven you would need to sell 18, 182 burgers.
 Sample Problem # 2
Try out this problem for your self

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You own a lemonade stand.
It costs you Php 1.50 to make cup of lemonade

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You sell your lemonade for Php 5.00.
It cost you Php 5,000 to rent for the space of
your lemonade stand.
How many cups of lemonade do you have to
sell to breakeven?
Solve now 11
 Answer
Given: V = Php 1.50 P = Php 5.00
F = Php 5,000
Solution:

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X = F /( P V)

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X = 5000 / ( 5 1.50)
X = 5000/ ( 3.5)
X = 1, 428.57
X 1, 429

You would need to sell 1, 429 cups of lemonade to 12

breakeven.
Limitations of BEP Analysis
Assumes that sales prices are constant at all
levels of output.

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Assumes production and sales are the same.
Break even charts may be time consuming to

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prepare.
It can only apply to a single product or single mix
of products.

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 Conclusion
A Breakeven Analysis is a simple tool to use to
determine if you have priced your product

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correctly.
A Breakeven Analysis helps you calculate how

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much you need to sell before you begin to make
a profit. You can also see how fixed costs, price,
volume, and other factors affect your net profit.

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 References:
Mejorada, Nenita D., Business Finance and Philippine Business
Firms. 2006.
A Framework for Management Gary Dessler

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Dessler, Gary, A Framework for Mabagement
Math Lover Hub Pages. Even Point Analysis. http://

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mathslover.hubpages.com/hub/Breakeven-analysis
http://www.tutor2u.net/business/production/break_even.htm
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http://connection.cwru.edu/mbac424/breakeven/BreakEven.html
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http://www.dinkytown.net/java/BreakEven.html 3/1/06
http://office.microsoft.com/en-us/templates/TC011165121033.aspx
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