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The breakeven point

# The breakeven point - BEP = 100(1-375/500 BEP = 100(1 0.75...

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The breakeven point - the point at which there is no profit or loss - Volume of production at which all costs- both fixed and variable are met - for our purposes, assume B.E.P is calculated on an annual basis Fixed costs (FC) - costs that do not vary with the level of production - costs you have no matter what - Office salaries - Rent - Insurance - Depreciation (the value of asset decreases over time) Variable costs (VC) - costs that vary with the level of production - sales commission, overtime payments, direct labour, electricity - For example. Cell phones. ..base plans + use - sometimes difficult to determine Break even calculation #1 - Be. (\$) = FC / (1-VC/SP) - SP = selling price (express ed on either a per unit or as a total sales figure) # 2 – BE. (units) = FC / UC - Unit contribution = SP per unit – VC per unit then. .. - BE (Units) = FC / UC EX. Over the course of the next year, you are giving the following projected d at a: - Sales = \$500K - FC = \$100 - VC = 75% of sales - What is the \$ BEP B.E. (\$) = FC / (1-VC/SP) Find variable cost = 0.75 x 500,000 = 375k

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Unformatted text preview: BEP = 100 / (1-375/500) BEP = 100 / (1- 0.75) BEP = 100/ 0.25 BEP = \$400,000 EX 2 You are given the following data-Yearly expense: 60,000-Selling price per unit: 10.00-Yearly rent expense: 12000-Wages per unit produced: 2.25-Annual Salaries: 130000-Overhead costs per unit: 2.00-Raw materials per unit: 3.25 How many units must be sold to at least breakeven? 1. Separate fixed and variable costs-Fixed – yearly lease expense, yearly rent expense, annual salaries-Variable – wages per unit produced, overhead costs per unit, raw materials per unit Fixed costs: 60000 + 12000 + 130000 = 202000 Variable costs: 2.25 + 3.25 + 2.00 = 7.5 Selling price (given) = 10.00 Unit contribution = selling price – VC = 2.50 B.E.P in units = FC / UC = 202,000 / 2.50 = 80,800 units...
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The breakeven point - BEP = 100(1-375/500 BEP = 100(1 0.75...

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