Unit 3.1 Breakeven Analysis

A. The Breakeven Point

1. Managers typically want to know when a company will start to make a profit.

2. _____________________________________ = sales volume or sales revenue at which sales revenue is exactly equal to total costs, and there is no profit or loss.

a. Only one level of sales for which this is true.

b. Can be calculated using the profit equation

Sales revenue Variable expenses Fixed expenses = Operating income

Formula:

_____________________________________

Solve for units sold.

3. At the breakeven point, the total contribution margin equals total fixed expenses.

4. Can use contribution margin to calculate break even point:

Formula:

_____________________________________ = _____________________________________

_____________________________________

5. The formula can be modified a bit to calculate sales revenue at the breakeven point:

Formula:

_____________________________________ = _____________________________________

_____________________________________