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BREAK-EVEN ANALYSIS Quantity (Q) $ TR TC Total Fixed Cost Q* TFC Break-Even Quantity P: Price = TFC + (AVC)(Q) = (P)(Q) QoQo <0 Profit ( = TR - TC >0 QoQo BREAK-EVEN ANALYSIS
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Critical Quantity: = 0 TR = TC PQ* P: Price TFC: Total Fixed Cost Profit ( = TR - TC = TFC + (AVC)Q* PQ* - (AVC)Q*= TF (P - AVC)Q*= TFC P - AVC: gross margin Q* = TFC (P - AVC) TFC = $10.000P = $20 AVC = $15/unit Q* = 10.000 (20 - 15) = 2.000 units Example: BREAK-EVEN ANALYSIS
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Profit Contribution = Profit Volume – Specific Program Costs c = V – SPC S* = SPC [(P-AVC)/P] S* = 2,000 [(20 - 15)/20] = $8.000/wk PROFIT-CONTRIBUTION & BREAK-EVEN Profit Volume = V = (P)Q - (AVC)Q = (P – AVC)Q Sales = S = (P)Q Q = S/P V = [ (P – AVC) ] S P Suppose P = $20/kg AVC = $15/kg SPC = $2,000 Then: C = [(P-AVC)/P] S – SPC = [(20 – 15)/20]S – 2,000 = [.25]S – 2,000
![Profit Contribution = Profit Volume – Specific Program Costs c = V – SPC S* = SPC [(P-AVC)/P] S* = 2,000 [( )/20] = $8.000/wk PROFIT-CONTRIBUTION & BREAK-EVEN Profit Volume = V = (P)Q - (AVC)Q = (P – AVC)Q Sales = S = (P)Q Q = S/P V = [ (P – AVC) ] S P Suppose P = $20/kg AVC = $15/kg SPC = $2,000 Then: C = [(P-AVC)/P] S – SPC = [(20 – 15)/20]S – 2,000 = [.25]S – 2,000](http://images.slideplayer.com./31/9714649/slides/slide_4.jpg "Profit Contribution = Profit Volume – Specific Program Costs c = V – SPC S* = SPC [(P-AVC)/P] S* = 2,000 [( )/20] = $8.000/wk PROFIT-CONTRIBUTION & BREAK-EVEN Profit Volume = V = (P)Q - (AVC)Q = (P – AVC)Q Sales = S = (P)Q Q = S/P V = [ (P – AVC) ] S P Suppose P = $20/kg AVC = $15/kg SPC = $2,000 Then: C = [(P-AVC)/P] S – SPC = [(20 – 15)/20]S – 2,000 = [.25]S – 2,000")
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PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.25]14,000 – 2,000 = $1,500 14,000 1,500 C = [.25]S – 2,000 S* S* = [2.000]/.25 = $8,000
![PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.25]14,000 – 2,000 = $1,500 14,000 1,500 C = [.25]S – 2,000 S* S* = [2.000]/.25 = $8,000](http://images.slideplayer.com./31/9714649/slides/slide_5.jpg "PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.25]14,000 – 2,000 = $1,500 14,000 1,500 C = [.25]S – 2,000 S* S* = [2.000]/.25 = $8,000")
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PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.33]14,000 – 2,000 = $2,620 14.000 1,500 C = [.33]S – 2,000 S* S*’ = [2,000]/.33 = $6,061 2,620 C’C’ S*’ 14,000
![PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.33]14,000 – 2,000 = $2, ,500 C = [.33]S – 2,000 S* S*’ = [2,000]/.33 = $6,061 2,620 C’C’ S*’ 14,000](http://images.slideplayer.com./31/9714649/slides/slide_6.jpg "PROFIT-CONTRIBUTION & BREAK-EVEN Profit Contribution ($) -2,000 Sales Volume/week ($) CC 8,000 0 =[.33]14,000 – 2,000 = $2, ,500 C = [.33]S – 2,000 S* S*’ = [2,000]/.33 = $6,061 2,620 C’C’ S*’ 14,000")
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