advertise drink “X’ as a “great fun drink”. Which product should you compare drink ‘X” to?A.CokeB.Grape JuiceC.Dr PepperD.Cranberry JuiceE.Pepsi

Break Even Analysis

Breakeven analysis!•Fit DeckShark Tank Season 5 Week 15

Exhibit 9.6HomeownersBusinessesSize750001000Adoption1%20%Price100500Usage/ year1220Margin60%80%Fixed Costs4000001000000Profit??Benefits-size-adoption-priceCosts-margin-fixed costs

Break Even Analysis•Relationships between cost, price, revenue, profit•Break even point = # of units where revenues = cost (or, profits = 0)•Key components:–Fixed cost (FC)–Variable cost (VC)–Price (P)

Key Formulae - 1•[Q * ( P-VC)] – FC•[Q * P * (Profit margin)] – FC•Set at “0”, solve, and get break-even “Q”•Insert values and, for a given “Q”, get value of profit/ loss

Key Formulae - 2•Profit = [Q * ( P-VC)] – FC•If Profit = 0:–BreakevenQ = FC / (P-VC)

Solving Exhibit 9.6•[Q * P * (Profit margin)] – FC 75000 *1%*12= 900010060%400000Homeowners9000 *100*60%=540,000400000140,000HomeownersSize75000Adoption1%Price100Usage/ year12Margin60%Fixed Costs400000Profit?

Breakeven analysis!•Fit DeckShark Tank Season 5 Week 15

Fit Deck – Last year•VC = $2•Q = 55,000•Q*P = $640,000•P = (640,000/55,000) = $11.63 ($14.95??)•Profit = $0•Profit = [Q * ( P-VC)] – FC•0 = [55000*(11.63 – 2)] – FC•FC = [55000*(11.63 – 2)] = $529,650

Fit Deck – Robert’s math•VC = $2 ; P = $14•Q*P = $700,000•Q = (700,000/14) = 50,000•Cost of goods = Q*VC = 50,000*2 = $100,000•Profit = [Q * ( P-VC)] – FC•Profit = Q*P – Q*VC - FC•100,000 = 700,000 – 100,000 - FC•FC = 700,000 – 100,000 – 100,000 = $500,000

Calculate Breakeven•Assume all remains unchanged, what is breakeven quantity for [homeowner] segment?A.About 5000 (4750-5250)B.About 6500 (6250-6750)C.About 8000 (7750-8250)HomeownersSizeAdoptionPrice100Usage/ yearMargin60%Fixed Costs400000Profit?

Profit Potential?

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