Breakeven Analysis
Slide 27

Components:

Fixed Costs — Overheard

Programmed — Salesperson’s Salary Profit Objective

Variable Cost —

Cost of Goods Sold — raw materials and direct labor

Indirect — Any expenses that vary with quantity but cant be directly associated with production such as Transportation Costs and Sales Commissions

Calculating Breakeven Point

BEP Units:

Need to Know: 1. Total Fixed Costs 2. Unit Variable Cost 3. Unit Selling Price

Unit Breakeven = Fixed Costs / (Unit Selling Price — Unit Variable Cost)

BEP Currency: When you know BEP Units then you can calculate BEP Currency:

BEP Units * Unit Selling Price = BEP Currency

BEP Marketshare %

Market Share Units = Companies’s BEP Units / Industry’s Forecasted Sales

Market Share Currency = Companies’s BEP Currency / Industry’s Forecasted Total Sales

A firm’s MS Units & MS Currency are usually not the same

Average Industry Selling Price:

Industry’s Forecasted Total Sales / Industry’s Forecasted Total Units Sold

Contribution Analysis — in General is the difference between Total Sales Revenue and Total Variable Costs

Slide 3,7, 21, 25

Contribution Per Unit (CPU) = Unit Selling Price — Unit Varriable Cost

Contribution Margin (CM) = CPU / Unit Selling Price

Total Contribution (TC) = CPU x Units Sold

Contribution & Breakeven Relationship

BEP Units = Fixed Costs / CPU — Answer x Selling Price Per Unit

BEP Currency = Fixed Costs / CM

Price Cut:

Selling Price = Original Unit Price x (100 — % of Price Cut)

Gross Margin = Sales Revenue — COGS ( Variable Costs)

Sales Revenue = 100% COGS = COGS x 100 / Sales

Gross Margin = 100% — COGS %

BEP Currency = (Fixed Costs + Programmed Costs) / CM

BEP Currency = ( Fixed Costs + Profit Objective) /