BUS 280 TEAM Break-even Analysis 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: Fixed Costs Break-even Units 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. 0. 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. When you are selling more than one product, you will need to allocate fixed costs to calculate break-even by product. One way to do this is to use the previous sales for each product in the calculation. Given fixed costs of $60,000, complete the following table to allocate fixed costs and calculate break-even for each product. Tops Pants Unit Price $20 $30 Unit Cost $10 $15 Previous Sales $60,000 $54,000 Allocation Percent Allocated Fixed Cost Break-even Units 3. How can knowing the break-even units help you with other business decisions