1. Types of Cost
Costs
Fixed
Variable Costs

2. Ch 5(B) : Capacity Planning: Break-Even Analysis
Operation costs are divided into 2 main groups:
Fixed costs
Variable costs

3. Fixed Costs
Include rent, property tax, property insurance, wages of permanent employees, depreciation (except in working hour depreciation).
The total fixed cost is fixed throughout the year.
It does not depend on the production level.
When we have a plant, then the above costs are fixed, no matter if we produce one unit or one million units.

4. Total Fixed Cost and Fixed Cost per Unit of Product
(F/Q)
Production volume (Q)
Production volume (Q)

5. Variable Costs
Costs of raw material, packaging material, direct labor, production W&P are the main variable costs.
Variable cost is fixed per unit of production.
The total variable costs depend on the volume of production.
The higher the production level, the higher the total variable costs.

6. Variable Cost per Unit and Total Variable Costs
Per unit of product
Total Variable costs
(VQ)
(V)
Production volume (Q)
Production volume (Q)

7. Total Costs Amount ($) Total cost = F+VQ Total variable cost (VQ)
Total Fixed cost (F)
Q (volume in units)

8. Total Revenue It is assumed that the price of the product is fixed,
and we sell whatever we produce.
Total sales revenue depends on the production level. The higher the production, the higher the total sales revenue.

9. Break-Even Analysis
Break-even point is the unit or dollar sales at which an organization neither makes a profit nor a loss.
At the organization’s break-even sales volume:
Total Revenue = Total Cost

10. Break-Even Point Total revenue Profit Amount ($) Total cost Loss
BEP units
Q (volume in units)

11. Break-Even Computations

12. Breakeven (BEP) Q BEP = FC . Times P P – VC PQbe = FC atau FC
So: PQbe = FC x P
P - VC
PQbe = FC x P
P/P – VC/P
PQbe = FC atau FC
1 – VC/P – VC/S
BEP (Rp/US$) = FC atau FC
1 – VC/P – VC/S

13. Example
$500,000 total yearly fixed costs.
$150 per unit variable costs
$200 per unit sale price
QBEP=500,000/( ) =10,000 units
If our market research indicates that the present demand is > 10,000, then this manufacturing system is economically feasible.

14. Example Total a Unit Sell (400unit) $ 1.000.000 $ 2.500
Variable Cost (VC)
Contribution Margin $ $ 1.000
Fixed Cost (FC)
Net Profit $
Q BEP = FC = = 350
P – VC

15. BEP (Rp/US$) = FC
1 – VC/P
BEP = FC = =
1 – VC/P 1 – 1500/ ,6
= = Rp
0,4
BEP unit = / 2500
= 350 unit

16. Profit Loss Break even point Fixed expense
Break even in units = 1,200,000
Break even in $ = 1,200,000 x 24 = $28,800,000
Profit
Loss
Break even point
Fixed expense

17. BEA for Multiple Alternatives
Break-even analysis for multiple alternatives:
Such an analysis is implemented to compare cases such as
A Simple technology
An Intermediate technology
An Advanced technology
General purpose machines
Multi-purpose machines
Special purpose machines
Low F high V
In between
High F Low V
In general, when we move from a simple technology to an advanced technology; F  V