The break - Sales-Ìv a r iable expenses-f i xed expenses =...

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The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC). [1]A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyse the potential profitability of an expenditure in a sales-based business. break even point (for output) = fixed cost / contribution per unit contribution (p.u) = selling price (p.u) - variable cost (p.u) break even point (for sales) = fixed cost / contribution (pu) * sp (pu) Break-even Analysis The break-even point is the level of sales at which revenue equals expenses and net income is zero (Horngren, 2008). From the Guillermo Furniture Stores flexible budget you can get the following information on the most current state of Guillermo’s business- To find the current break-even point for units sold we would use the following equation-
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Unformatted text preview: Sales -Ìv a r iable expenses -f i xed expenses = net income For our break-even analysis net income would equal 0 and we could solve for N, or the number of units. The furniture equation break-even point would be as follows- 1344.05N- 367.25N- 1202080= 0 967.80N- 1202080= 0 967.80N= 1202080 N= 1230.63 units at the ratio of 13% high-end and 87% mid-grade furniture production. This would come out to 161.5 pieces of high-end furniture and 1069 pieces of the mid-grade furniture needing to be produced for Guillermo to hit the break-even point. Since his actual sales were high above this mark Guillermo Furniture Store is still, clearly profitable. If Guillermo is looking for a break-even point for his Flame retardant he would need to reduce his costs because his current cost is equal to the market price per liter and he would not make any profit regardless of the quantity of sales....
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