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Unformatted text preview: Lecture 1/18/08 Development of the BreakEven Model Validating the BreakEven Model Enhancing the BreakEven Model 1. Production above capacity a. Additional Production Cost Linear BreakEven Models Breakeven point = the production quantity that yields a zero profit (total costs=total revenues) Assumptions in breakeven analysis 1. Variable cost is proportional to the level of production 2. Total revenue (PxQ) is proportional to the level of production. Linear BreakEven Models Definition of Variables Q = number of units produced per period P = selling price per unit R(Q) = revenue from selling Q units of product F = fixed cost per period V = variable cost per unit TC(Q) = Total cost of producing and selling Q units TP(Q) = Total profit per period of selling Q units N = Normal production capacity (most we can produce under normal conditions, limited by equipment, budget) Linear BreakEven Models Submodels V Q F Q T C P Q Q R + = = ) ( ) ( Linear BreakEven Models Submodels VQ F PQ Q TC Q R Q TP VQ F Q TC PQ Q R = = + = = ) ( ) ( ) ( ) ( ) ( Linear BreakEven Models Submodels F V)Q (P ) ( ) ( ) ( ) ( ) ( = = = + = = VQ F PQ Q TC Q R Q TP VQ F Q TC PQ Q R Linear BreakEven Models Submodels or TP(Q) Point Breakeven F V)Q (P ) ( ) ( ) ( ) ( ) ( = ⇒ = = = + = = VQ F PQ Q TC Q R Q TP VQ F Q TC PQ Q R Linear BreakEven Models Submodels V P F Q F V)Q (P or TP(Q) Point Breakeven F V)Q (P ) ( ) ( ) ( ) ( ) ( = ⇒ = = ⇒ = = = + = = VQ F PQ Q TC Q R Q TP VQ F Q TC PQ Q R Break Even Point Q (production qty) BreakEven Point = F/(PV) R(Q)=P*Q F TC(Q)=F+VQ Cost ($) Validity Check = = V P F P PQ ) R(Q Q point even  break At * * * Validity Check = = = V P P F V P F P PQ ) R(Q Q point even  break At * * * Validity Check...
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This note was uploaded on 04/17/2008 for the course CSA 273 taught by Professor Patton during the Spring '08 term at Miami University.
 Spring '08
 Patton

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