1. = an introductory presentation =
BREAK-EVEN ANALYSIS
= an introductory presentation =

2. PRODUCTION IN GENERAL Produce goods or services
Follows input-process-output pattern
Objective: profit maximization
2 key variables concerning the objective: total revenue (R) and total cost (C)

3. COMPONENTS OF TOTAL COSTS IN BEA
Fixed costs (F): do not depend on sales volume
Example: rent, salaries for permanent employees
Variable costs (V): change directly with sales volume. In BEA, V = vQ, v = variable cost per unit
Example: shipping costs, costs of raw material purchases

4. REVENUES IN BEA Sales Revenue = PQ P = sale price per unit
Q = sales quantity in unit
In BEA, it is assumed that Total Revenue, TR = PQ [meaning that all the revenues are from sales]

5. PROFIT (MATHEMATICS STANDPOINT)
π = Total Revenue – Total Cost (= TR-TC)
π > 0 ⇔ TR > TC ⇔ π = profit
π < 0 ⇔ TR < TC ⇔ π = loss
π = 0 ⇔ TR = TC ⇔ break-even
π is often called: EBIT (earnings before interest and taxes)

6. BREAK-EVEN POINT (BEP)
is the level of sales necessary to cover all operating costs (TC)
At BEP: EBIT = 0
EBIT = 0 ⇔ R = C ⇔ PQ = F + vQ
and these are equivalent to:

7. IN BREAK-EVEN CONDITION:

8. SAMPLE PROBLEM
In a production of certain goods, the variable cost per unit is Rp 20 and the sale price per unit is Rp 40. If the fixed cost in the production is Rp 1000, determine: a) BEP, b) the total revenue at BEP, c) the total cost at BEP.

9. ILLUSTRATION BEP = 50 units E = Break- even Point (BEP)
If Q > BEP we gain profit
If Q < BEP we suffer loss