Breakeven Feb2015 d

7/23/2019 Breakeven Feb2015 d

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Breakeven

Dr A R M Harunur Rashid



• Break even in time period: pay backperiod

•Break even point with a decisionvariable,e.. breakeven !or " units peryear

• #ro!it $ Revenue % &otal cost



breakeven quantity for adecision variable. For example, the variable may be a design element to minimizecost, or the production level needed to reali'e revenues that e(ceed costs by)*+. &his uantity, called the breakeven point QBE is determined using relations!or revenue and cost at di!!erent values o! the variable Q. !he size of Q may bee(pressed in units per year, percentae o! capacity, hours per month, and many

other dimensions.

Fixed costs (FC). Includes costs such as buildings, insurance, fixed

overhead,

some minimum level o! labor, euipment capital recovery, and in!ormationsystems.

Variable costs (Ve). Includes costs such as direct labor, materials, indirectcosts, contractors, marketin, advertisement, and warranty.



"rofit is calculated as#ro!it $ revenue - total cost#$%!&

A relation !or the breakeven point may be derived when revenue and total costare linear !unctions o! uantity " by settin the relations !or $and !& equal to

each other, indicatin a pro!it o! 'ero.$ #!& rQ # F& ' (& # F& ' vQwhere r # revenue per unit v # variable cost per unit



i(ed cost per time period

• &o !ind !i(ed cost per time period, it isnecessary to !ind or assume pay backperiod.

• /o !irst !ind pay pack period and divide!i(ed cost by that pay period.



0(ample )1.)

2u!kin &railer 3orporation assembles up to 1* trailers per month !or )4-wheeltrucks inits east coast !acility. #roduction has dropped to 56 units per month over the last 6monthsdue to a worldwide economic slow down in transportation services. &he !ollowinin!ormation

is available.i(ed costs 3 $ 786*,*** per month9ariable cost per unit v # )*+, Revenue per unit r # )-+, a/ 0hat is the breakeven quantity b/ 0hat is the current profit or loss per month for the facility1



;se 0uation <)1.5= to determine the breakeven number o! units. All dollar amounts are in 7)*** units. A>?86*@ 86 - 16 $ )4.86 units per month

b? &o estimate pro!it in 7)*** at " $ 56 units per month

#ro!it $ $ % !& # rQ % F& ' vQ/# r % v/Q % F& $ 86 - 16?56 - 86*$ 756*&here is a pro!it o! 756*,*** per month currently

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Breakeven Feb2015 d