1. Breakeven Analysis A graphical view of the relationship between profit and sales volume By John C. Kelly

2. Steps to Perform Breakeven Analysis ► Select a sales unit, e.g.  Consultant: hours or projects  Writer: articles or books  Teacher: classes or students  Products: widgets ► Select a unit for analysis:  Time interval – month or year  Activity – class, magazine issue

3. Profit over some Time Interval Profit = Revenue – Expenses Revenue = Number of units sold X Price per unit Note Terminology Revenue = sales = gross income Profit = earnings = net income

4. Expenses = Fixed expenses + Variable expenses Fixed expenses occur even if you don’t sell any thing, e.g. rent, payroll, insurance = Fixed expenses + Variable expenses Fixed expenses occur even if you don’t sell any thing, e.g. rent, payroll, insurance

5. Variable Expenses Variable expenses are associated with the thing being sold, e.g. food in a restaurant, printing, manufacturing, sales commissions Can usually be thought of as Cost of Goods Sold On Income Statement = Number of Units Sold X Cost per Unit

6. Breakeven Analysis A graphical view of relationship between profit and sales volume Dollars Business Units Profit Loss Revenue Expenses Fixed Exp