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The Break Even Analysis

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by

Nick Chapman

on 23 November 2013

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Transcript of The Break Even Analysis

The Break Even Analysis
To "
break even
" means to make no money and lose no money.

Total Revenue = Total Expenses
Total Revenue = Fixed Costs + Variable Costs
Revenue = Price X Units Sold
Costs that stay the same
Ex. Rent, Utilities, Salaries
The cost of selling each unit
Ex. wholesale cost,
materials
,
ingredients
Variable Costs = Variable Cost X Units Sold
The money you bring in from sales
Fixed Costs = Rent + Utilities + Salaries + Payroll Tax + Insurance + Interest + Misc/Other
This is one method of Calculating Revenue Projections for Multiple Products
Product A
Product B
Product C
VC(A) = Cost Per Unit(A) X Units Sold(A)
R(A) = Price(A) X Units Sold(A)
P(A)% = Percentage of total units sold
Revenue = Price(A)Xa + Price(B)Xb + Price(C)Xc + ... + Price(n)Xn
Expenses = FC + VC(A) + VC(B) + VC(C) + ... + VC(n)
Units Sold(A) = Xa
Xa = P(A)% X Total Units Sold
where, P(A)% + P(B)% + P(C)% + ... + P(n)% = 100%
Price is \$100
Cost is \$40
We project 60% of our sales will come from this product
Price is \$250
Cost is \$95
We project 25% of our sales will come from this product
Price is \$400
Cost is \$225
We project 15% of our sales will come from this product
Revenue
= 100(0.6x)
Variable Cost
= 40(0.6x)
Revenue
= 250(0.25x)
Variable Cost
= 95(0.25x)
Revenue
= 400(0.15x)
Variable Cost

= 225(0.15x)
BREAK EVEN POINT
(100(0.6x)
+
250(0.25X)
+
400(0.15x)
= 100,000 +
40(0.6x)
+
95(0.25x)
+
225(0.15x)
60x
+
62.5x
+
60x
= 100,000 +
24x
+
23.75x
+
33.75x
182.5x = 100,000 + 81.5x
101x = 100,000
x = 100,000 / 101
TOTAL REVENUE = TOTAL EXPENSES
Here I am
(-81.5x) = (-81.5x)
100
200
500
400
300
0
1
4
3
2
5
100
200
500
400
300
0
1
4
3
2
5
50,000
100,000
250,000
200,000
150,000
0
500
2,500
2,000
1,500
1,000
50,000
100,000
250,000
200,000
150,000
0
500
2,500
2,000
1,500
1,000
Rev=182.5x
Exp=100,000+81.5x
x = 990.1 units
Price X Units Sold
Revenue
Expenses
Units
\$
http://veinternational.org/resources/reference-files/
Price = \$250
Variable Cost = \$100
Fixed Costs = \$450,000
Revenue = 250X
Expenses = 100X + 450,000
150X = 450,000
30,000
250X = 100X + 450,000
x = 30,000 units
break even at 30,000 units sold
Revenue = Expenses
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