Lecture4 - Lecture 1/23/08 Review of Break-Even Analysis...

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Lecture 1/23/08 Review of Break-Even Analysis Dumping Marginal Analysis Average Cost Analysis Average vs. Marginal Costs
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Linear Break-Even 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
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Development of Break-Even Model Total Profit = Total Revenue-Total Cost P(Q) = TR(Q)-TC(Q) TR(Q)= P*Q TC(Q)=F+v*Q TP(Q)=P*Q-F-v*Q=(P-v)Q - F Breakeven Point is production (or order) quantity Q* such that TP(Q)=0 TP(Q)=0 => Q*=F/(P-v)
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Enhancements to Linear Break-Even Models Production above Normal Capacity Production can occur above capacity N at a higher variable cost of V * per unit. Model for Total Profit R(Q) = PQ TC(Q) = F+QV if Q N =F + NV +(Q-N)V* if Q>N If Q>N TP(Q)=PQ-F-NV-(Q-N)V* =(P-V)N - F + (P-V*)(Q-N)
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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.

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Lecture4 - Lecture 1/23/08 Review of Break-Even Analysis...

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