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Introduction to Breakeven Analysis

Introduction to Breakeven Analysis - The price charged to...

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Introduction to Breakeven Analysis Breakeven analysis is a process of calculating and illustrating the number of units that must be sold to reach the point where the revenue flowing into the company is enough to offset its costs for a designated period. It is based on the sale of a certain number of units at a given cost with a given selling price. Basic concepts involved: BE = ”Breakeven” - This is the point in a company’s business activity where the revenue Flowing into the business equals the costs or expenses paid. This is the “0” point: the point where the amount of money flowing into the business equals the amount flowing out. FC = “Fixed Cost” - The cost or expense paid by a business for items that do not create a revenue flow into the business. VC = “Variable Cost” – The cost of products sold including the associated direct labor costs. SP = “Selling Price” –
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Unformatted text preview: The price charged to customers for the products they purchase. MU = “Mark Up” – The cash amount added to the variable cost that determines the unit selling price of a product. PP = “Projected Profit – The projected profit objective a company establishes as a benchmark to achieve over a given time period. U = “Unit” – a single measure of a product or service. R = “Revenue” – The cash that flows into the company. T = “Total” – Equals the sum of a series of numbers. (Example: TVC means “total variable cost” or “total cost.”) G = “Goal” – “Goal,” in this exercise, is the benchmark point for reaching the projected objective. CC = “Contribution to Cause” – The “cause” (fixed cost or profit) to which mark-up revenue is applied. The Breakdown Analysis Formulas – BE = _ FC_ = FC = BEU SP-VC MU PPU = _PP = PP = PPU SP-VC MU...
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