Break-even Analysis

4.2  Break-even Analysis

• Break-even Analysis – used to determine how
much sales volume a business needs just to
cover costs
• Cost – amount spent on producing x units of a
product
• Revenue – amount received from selling x
units of the product
• Profit – amount gained if revenue is greater
than the cost

4.2  Break-even Analysis

 • Cost function: yC = C(x)
• C(x) = vx + F
– F is the fixed cost (overhead expenses like rent,
machineries, interest on loans)
– v is the variable cost per unit (the cost of
producing each unit of the product
• Examples:
C(x) 10  2x yC  0.65x 10,000

  4.2  Break-even Analysis

 • Revenue function: yR = R(x)
• R(x) = px
– p is the selling price per unit
– If the selling price depends on the quantity
demanded, we write p = D(x) and R(x) = xD(x).
• Examples:
R(x)  3x yR  0.88x

 
4.2  Break-even Analysis
Break-even point – where the cost and revenue
functions intersect at a point; where cost
equals revenue

C(x)  R(x)

4.2  Break-even Analysis

• Loss – occurs when the firm makes and sells
fewer units than its break-even quantity
• Profit – occurs when the firm makes and sells
more units than its break-even quantity

Profit function:
P(x)  R(x)  C(x)

4.2  Break-even Analysis

1. Given the cost function C(x) = 10 + 2x and
revenue function R(x) = 3x, find the break-
even quantity and price.

C(x)  R(x)
10  2x  3x
x  10
  30
R(10)  3(10)

b.e. quantity : 10 units

b.e. price : Php30

4.2  Break-even Analysis

3. Given the cost function C(x) = 0.13x + 750
and revenue function R(x) = 0.88x, find the
break-even quantity and price.

C(x)  R(x)
0.13x  750  0.88x
x 1,000
R(1,000) 0.88(1,000)  880

b.e. quantity : 1,000 units

b.e. price : Php880

4.2  Break-even Analysis

11. An oven manufacturer claims that the total
cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
a)What is the fixed cost?
b)What is the cost of producing 50 ovens?

4.2  Break-even Analysis

11. An oven manufacturer claims that the total
cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
a)What is the fixed cost?

F  Php100,000

4.2  Break-even Analysis

11. An oven manufacturer claims that the total
cost of producing x ovens is described by the
function C(x) = 100,000 + 2,000x.
b)What is the cost of producing 50 ovens?

C(50) 100,000  2,000(50)  Php200,000



4.2  Break-even Analysis

15. A food repacking company estimates sales
figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
a)find the cost, revenue, and profit functions.
b)what is the break-even sales volume?
c) find the corresponding profit figures if the
actual sales will be as estimated.

4.2  Break-even Analysis

15. A food repacking company estimates sales
figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
a)find the cost, revenue, and profit functions.
C(x)  4,000,000  215x
R(x)  375x
P(x) 160x  4,000,000

4.2  Break-even Analysis

15. A food repacking company estimates sales
figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
b)what is the break-even sales volume?
C(x)  R(x)
4,000,000  215x  375x
x  25,000 units

 4.2  Break-even Analysis
15. A food repacking company estimates sales
figures of Php15.5M for their most popular
item. Assuming that the item sells at Php375
each, fixed costs are Php4M, and variable cost
are Php215 per unit repacked,
c) find the corresponding profit figures if the
actual sales will be as estimated.
R(x)  375x 15.5M  x  41,334
P(41,334) 160(41,334)  4,000,000
 Php2,613,440
 4.2  Break-even Analysis
17. A manufacturer can sell a certain health
supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
a)How many units must the manufacturer sell to
break even?
b)What is the manufacturer's profit or loss if 100
units are sold?
c) How many units must be sold for the
manufacturer to realize a profit of Php12,500?

4.2  Break-even Analysis

17. A manufacturer can sell a certain health
supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
a)How many units must the manufacturer sell to
break even?
C(x)  R(x)
440x  75,000 1,100x
x  114 units


 4.2  Break-even Analysis
17. A manufacturer can sell a certain health
supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
b)What is the manufacturer's profit or loss if 100
units are sold?
P(x)  R(x)  C(x)  660x  75,000
P(100)  660(100)  75,000  9,000
This is a loss of Php9,000.

 4.2  Break-even Analysis
17. A manufacturer can sell a certain health
supplement for P1,100 per unit. Its total cost
consists of a fixed overhead of Php75,000 plus
production costs of Php440 per unit.
c) How many units must be sold for the
manufacturer to realize a profit of Php12,500?

P( x)  660 x  75,000
12,500  660x  75,000
x  133 units

4.2  Break-even Analysis


19. As part of their course requirement, a group
of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
a)How many pieces must the students sell to
break even?
b)How many pieces must the students sell to
make a profit of Php5,000?

4.2  Break-even Analysis

19. As part of their course requirement, a group
of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
a)How many pieces must the students sell to
break even?
C(x)  R(x)
25x  700  45x
x  35 pieces

 4.2  Break-even Analysis
19. As part of their course requirement, a group
of students bakes pastries and sells them. The
rental for the oven is Php700 for a day and the
baking costs add to roughly Php25 per piece.
The pastries can be sold for Php45 apiece.
b)How many pieces must the students sell to
make a profit of Php5,000?
P(x)  R(x)  C(x)  20x  700
5,000  20x  700  x  285 pieces

 4.2  Break-even Analysis