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HBS Toolkit License Agreement
HBS Toolkit License Agreement
Terms
You accept that this product is intended for your use, and you will not
duplicate in any form or manner, electronic or otherwise, copies of this
product nor distribute this product to anyone else.
You recognize that the product and its content are the sole property of the
Publisher, and that we have copyrighted the product.
You agree that the Publisher is not responsible for any interruption of
service or malfunction that is a consequence of the Internet, a service
provider, personal computer, browser or other software or hardware
components. You accept that there is no guarantee that this product is
totally error free. You further understand and accept that the Publisher
intends to provide reliable information but does not guarantee the accuracy
or completeness of any information, and is not responsible for any results
obtained from the use of such information.
Contents
Introduction: This sheet
Analysis: Entry screen for fixed and variable costs, pricing/contribution,
and volume information
Chart: Displays break-even point, variable costs, fixed costs,
and contribution in dollars and units
Table: Output data which generates break-even chart
Overview
Managers often want to know the production level where profits earned from a product cover
the cost of resources used to create it. Break-even analysis is how we determine this level.
The point at which total sales revenues covers the costs of committed resources is called the
break-even point. In addition to knowing the break-even point, managers may also want to
know the point at which sales volume reaches a pre-set target-profit level.
This tool helps you perform both of these calculations. The first is break-even analysis
where your goal is to determine how many units you must sell to recover all of your fixed
costs. The second is target-profit analysis where your goal is to determine how many
units you must sell to reach a pre-defined profit level. The difference between the two is
that at break-even your target-profit is zero, whereas when you specify a target-profit
that is greater than zero, you are setting your goal above the break-even point.
Directions
You may want to print these directions as a reference guide for this tool.
Analysis: The analysis page is your primary input sheet. Here you will
tell the tool what type of analysis you want to perform, input
the data required to perform calculations, and view some of
the output of those calculations.
Chart: The chart sheet is one of the two report sheets in this tool.
Here you can visually measure your break-even or target-profit
level along with total fixed and variable costs. If you chose to
calculate the number of months before you reach break-even
or target-profit those numbers will be reported here.
Table: The table sheet is the second output report and contains the
data used to generate the break-even/target-profit chart. This
includes ten data points on either side of the break-even/target-profit
point.
Important Note: This tool is based on a Microsoft Excel worksheet. Any changes
you make to this file are permanent once you save the file. To
re-use this tool as a template for break-even calculations, always
open a new copy of the tool and save your results with a
different file name.
To start using the tool, remove the sample data from the tool using the Show/Hide
Sample Data option under the HBS Menu
Break-Even Analysis INTRODUCTION
Sample Problem
A company wants to begin selling a new pair of hand-held pliers in the upcoming fiscal
year. They want to know how many hand-held pliers they will have to sell in order to
break-even on this investment in materials and equipment. They received the following
data from the chief financial officer:
Fixed costs
Metal molding machine: $100,000
Plastic grip molder: $25,000
Sander: $5,000
The marketing department estimates that they can sell their new pliers for
$15.00 per unit. They further project that they will average 1200 units
per month.
The goal is that they will break-even and start to earn a profit within
the first year. His target-profit level for the end of the first fiscal year is
$100,000.
HBS Menu
Show/Hide Sample Data: Displays or removes sample entries
Show Calculator: Launches Windows calculator
Show/Hide Celltips: Toggles in/out red Celltips in documented cells
Print Sheet with Celltips: Prints Celltip documentation on current sheet
Set Zoom: Provides quick access to 80%, 100%, and 125% zoom levels
Visit Web Links: Links to HBS Toolkit website, Toolkit Glossary, and Toolkit
Feedback, as well as HBS and HBS Publishing web sites
About HBS Toolkit: Launches the about box for the HBS Toolkit
Jon B. DeFriese MBA `00 and Chad Ellis, MBA `98 developed this software under the
supervisionof Professor Steven Wheelwright as the basis for class discussion rather than
to illustrate eitherthe effective or ineffective handling of an administrative situation.
Break-Even Point
Target Profit $0.00
Sa...
Unit Price: $15.00 Break-Even Volume: 10,833
Unit Contribution Margin: $12.00 Expected Sales Per Month: 1,200
Units Dollars
Notes:
100000
25000
5000
15
Page 5
sample1
1 1
Page 6
sample1
1
1
0.5
0.5
1200
Page 7
sample1
Page 8
current1
Page 9
current1
1 1
Page 10
current1
Page 11
Break-Even Analysis BREAK-EVEN
CHART
$350,000
$300,000
$250,000
$200,000
Dollars
$150,000
$100,000
$50,000
$0
0 83 167 250 33 3 4 17 5 00 5 83 666 750 8 33 9 16 000 083 166 250 333 416 49 9 583 666
10 2 3 4 5 6 7 8 9 10 11 13 14 15 16 17 18 19 20 21
Number of Units
Total Variable Costs Total Fixed Costs Total Sales Revenues
Number of Units Total Fixed Costs Total Variable Costs Total Sales Revenues
0 $130,000 $0 $0
1083 $130,000 $3,250 $16,250
2167 $130,000 $6,500 $32,499
3250 $130,000 $9,750 $48,749
4333 $130,000 $13,000 $64,998
5417 $130,000 $16,250 $81,248
6500 $130,000 $19,499 $97,497
7583 $130,000 $22,749 $113,747
8666 $130,000 $25,999 $129,996
9750 $130,000 $29,249 $146,246
10833 $130,000 $32,499 $162,495
11916 $130,000 $35,749 $178,745
13000 $130,000 $38,999 $194,994
14083 $130,000 $42,249 $211,244
15166 $130,000 $45,499 $227,493
16250 $130,000 $48,749 $243,743
17333 $130,000 $51,998 $259,992
18416 $130,000 $55,248 $276,242
19499 $130,000 $58,498 $292,491
20583 $130,000 $61,748 $308,741
21666 $130,000 $64,998 $324,990