Process selection with Break-Even analysis

Break-Even analysis examines the cost trade-offs associated with demand volume.
The components of break even analysis are volume, cost, revenue, and profit.
• Volume is expressed as the number of units produced and sold.
• Cost is divided two categories: Fixed cost & variable cost.
✔ Fixed cost: plant, equipment, and other elements of overhead.
✔ Variable cost: labor, materials.
Total cost= fixed cost+variable cost.
• Revenue on a per-unit basis is simply the price at which the item is sold.
• Profit: Revenue- total cost.
Break-Even Point Analysis
Total cost= fixed cost+ total variable cost
TC= Cf+VCv
• Total Revenue=Volume X Price
TR=vXp
• Profit= Total revenue- total cost
Z= TR-TC
=vXp – (Cf+VCv)
Here:
Cf= fixed cost
Cv=variable cost per unit
V= volume
P= Price per unit
Break-Even Point Analysis
By equating total revenue with total cost and solving for v, we can find
the volume at which profit is zero. This is called break-even point. At
any volume above the break even point can determined as follows:
TR=TC
vp = (Cf+VCv)
vp-VCv = Cf
v(p-cv)=Cf
v= Cf/(p-cv)
Break-Even Point Analysis