What is Break-Even?

Break even analysis


Break even determines the minimum number of units t be produced and dsold for a business to
be profitable. Companies will consider their net income. (Net income is the general term for
profit or loss

NI= TR-TC

NI - Net Incone

At break even : NI=0
:tR=tc


The minimum number of units that we look for, is called the break even point. At the break even
long?”, the net income is zero and the total revenue is equal to the total costs.

- net income can be less that zero (negative) and that would mean that the Total Costs
are higher

Total revenue: the total amount made from selling the products

TR=Sx

Total Costs: total variable costs and fixed costs needed to produce the products

TC=TVC+Fc

TVC - total variable costs
FC- fixed cost


Two types of cost

1 total variable cost: variable cost per unit times the number of units
Variable costs include costs directly related to creating the product
Example: labour wages, cost of various parts or materials
VC- variable cost per unit. x- # of units produced
TVC= VCx

2. Fixed costs: costs to run the business, per period cost

Fixed costs are any cost that must be paid whether you prod use products or not

, Examples: administrative salaries, building rent|lease, taxes

Examples:

1. A company sells an item for $70. Their fixed costs are $8000 per month and the
variable cost per unit is $30

- determine the total cost equation

TC=VCx + FC
TC= 30x+ 8000


- determine the profit equation

TR= Sx
TR= 70x

Profit-net income

NI=TR-TC

- determine the profit equation (Met income equation)

NI= TR-TC

=70x-(30x+8000)
= 70x -30x-8000
= NI= 40x-8000

- calculate the number of units needed to be produced and sold per month to break-even

Option 1: at break-even
TR=TC
70x=30x+8000
70x-3px=8000
40x=8000
\40x=\40
200 units

Option 2: NI=0

NI= 40x-8000
0= 40x-8000