Break-even Analysis, Break-even analysis attempts to

Break-even Analysis

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Reference no: EM133944727

Question

Break-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and plan for the coming period. The general formula for calculating break-even units is:

Break-even units= Fixed Costs
____________

Price-Variable Cost

Fixed costs do not change with the units sold (at least in the short term). In Entrepreneur, these include rent, advertising, and payroll expense. Variable cost is the unit cost of goods sold.

1. A store has quarterly fixed costs of $50,000, and the unit cost of their product is $10.

a. How many units must they sell at $20 per unit to break even?

b. What is the break-even point if price is lowered to $18

c. The store is considering increasing advertising by $8,000 for the quarter. How many more units must they sell to break even at the $20 selling price?

2. How can knowing the break-even units help you with other business decisions?

Reference no: EM133944727

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