Calculate Breakeven Point in

Units and Revenue Dollars

Intermediate Cost Analysis

and Management

4.2 1
How do NAF organizations do
this?

User Fees Costs

2
 Terminal Learning Objective
Action: Calculate Breakeven Point in Units and Revenue Dollars
Condition: You are a cost advisor technician with access to all
regulations/course handouts, and awareness of Operational
Environment (OE)/Contemporary Operational Environment
(COE) variables and actors
Standard: With minimum of 80% accuracy:
• Identify assumptions underlying breakeven analysis
• Communicate key variables in breakeven equation from
scenario
• Define contribution margin 
• Enter relevant data into macro enabled templates to
calculate Breakeven Points and graph costs and revenues
3
 What is Breakeven?
• The Point at which Revenues = Costs
• Revenues above the breakeven point result in profit
• Revenues below the breakeven point result in loss
• May be measured in units of output or revenue
dollars
• Represents a “Reality Check”
• Is this level of revenue reasonable?
• If not, what actions would yield a reasonable
breakeven point?
4
 Review: Cost Terminology

• Fixed Costs –
Costs that do not change in total with the volume produced or sold

• Variable Costs - Costs that change in direct

proportion withinthe
Costs that change directvolume produced
proportion or sold
with the volume produced or sold
• Mixed Costs - A combination of fixed and variable
costs
A combination of fixed and variable costs
• Semi-variable Cost - Costs that change with
volume produced, but not in direct proportion
Costs that change with volume produced, but not in direct proportion

5
 LSA #1 Check on
Learning
Q1. Which type of cost remains the same in total
when units produced or sold increases?
A1. Fixed Cost

Q2. Which type of cost remains the same per unit

when units produced or sold increases?
A2. Variable Cost

6
 LSA #1 Summary

• During this lesson, we discussed Cost

terminology.

7
 Identify Assumptions
• The following are implied in the simple
breakeven equation:
• A single product or service
• Clearly segregated fixed and variable costs
• Variable costs are linear on a per-unit basis
• If analyzing multiple products is desired:
• Use “$1 of Revenue” as the Unit -or-
• Use a weighted average unit

8
 LSA #2 Check on
Learning
Q1. Why do we need assumptions?
A1. To simplify the analysis, following the Cost-
Benefit and Materiality Constraints.

Q2. How many products do we use in breakeven

analysis?
A2. Only one. Multiple products can overly
complicate the analysis.

9
The Breakeven Equation

Revenue – Costs = Profit

Revenue - Variable Cost - Fixed Cost = Profit

Breakeven Point is where Profit = 0

Revenue - Variable Cost - Fixed Cost = 0
Revenue = Variable Cost + Fixed Cost

Revenue = #Units Sold * Selling Price $/Unit

Variable Cost = #Units Sold * Variable Cost
$/Unit

10
 Graphic Depiction of
Breakeven
$ 5000
4500
4000
3500
3000
2500 Revenue
2000
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 11
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000
2500 Column2
Revenue
2000
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 12
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000
Fixed Cost
2500 Column1
2000 Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 13
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000 Fixed Cost
2500 Variable Cost
Total Cost
2000
Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 14
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000 Fixed Cost
2500 Variable Cost
Total Cost
2000
Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 15
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000 Fixed Cost
2500 Variable Cost
Total Cost
2000
Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 16
 Graphic Depiction of
Breakeven (Cont.)
$ 5000
4500
4000
3500
3000 Fixed Cost
2500 Variable Cost
Total Cost
2000
Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 17
 LSA #3 Check on
Learning
Q1. How is the breakeven equation expressed?
A1. Revenue – Variable Cost – Fixed Cost = Profit
(which is zero at the breakeven point)

Q2. Which variables are represented on the graph

by upward sloping lines?
A2. Revenue, Variable Cost, and Total Cost

18
 LSA #3 Summary
• During this lesson, we gave a graphic
description of a graphed breakeven.

19
 Sample Problem

• The following costs are incurred per show at

Sebastian’s Dinner Theater:
• Facilities cost $500
• Staff (actors who double as servers) 1000
• Kitchen staff 200
• Stage crew 300
• Food cost (per ticket) 10
• Ticket Price is $30
• Task: Calculate Breakeven number of tickets.
20
 Solving the Problem (part 1)
• Identify the key variables in the equation
• What are the fixed costs?
• Facilities cost 500
• Staff (actors who double as servers) 1000
• Kitchen staff 200
• Stage crew 300
• Total 2000
• What are the variable costs?
• $10 Food/Ticket * #Tickets
• What is the revenue?
• $30 Price/Ticket * #Tickets

21
 Solving the Problem (part 1)
• Identify the key variables in the equation
• What are the fixed costs?
• Facilities cost 500
• Staff (actors who double as servers) 1000
• Kitchen staff 200
• Stage crew 300
• Total 2000
• What are the variable costs?
• $10 Food/Ticket * #Tickets
• What is the revenue?
• $30 Price/Ticket * #Tickets

22
 Solving the Problem (part 1)
• Identify the key variables in the equation
• What are the fixed costs?
• Facilities cost 500
• Staff (actors who double as servers) 1000
• Kitchen staff 200
• Stage crew 300
• Total 2000
• What are the variable costs?
• $10 Food/Ticket * #Tickets
• What is the revenue?
• $30 Price/Ticket * #Tickets

23
 Solving the Problem (part 1)
• Identify the key variables in the equation
• What are the fixed costs?
• Facilities cost 500
• Staff (actors who double as servers) 1000
• Kitchen staff 200
• Stage crew 300
• Total 2000
• What are the variable costs?
• $10 Food/Ticket * #Tickets
• What is the revenue?
• $30 Price/Ticket * #Tickets

24
 Define Contribution Margin
• Contribution Margin = Sales – Variable Cost
• Unit Contribution Margin Represents the dollar
amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit

• What is the Unit Contribution Margin for Sebastian’s

Dinner Theater?
• For every ticket sold, profit increases by:
$30 - $10 = $20
25
 Define Contribution Margin
• Contribution Margin = Sales – Variable Cost
• Unit Contribution Margin Represents the dollar
amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit

• What is the Unit Contribution Margin for Sebastian’s

Dinner Theater?
• For every ticket sold, profit increases by:
$30 - $10 = $20
26
 Define Contribution Margin
• Contribution Margin = Sales – Variable Cost
• Unit Contribution Margin Represents the dollar
amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit

• What is the Unit Contribution Margin for Sebastian’s

Dinner Theater?
• For every ticket sold, profit increases by:
$30 - $10 = $20
27
 Define Contribution Margin
• Contribution Margin = Sales – Variable Cost
• Unit Contribution Margin Represents the dollar
amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit

• What is the Unit Contribution Margin for Sebastian’s

Dinner Theater?
• For every ticket sold, profit increases by:
$30 - $10 = $20
28
 Define Contribution Margin
• Contribution Margin may be stated as a
Percentage:
Unit Contribution Margin/Unit Selling Price
• Sebastian’s Contribution Margin Percentage =
$20/$30 =
$20/$30 = approximately .67 or 67%
• For every $1 of sale, profit will increase by
approximately $.67
29
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) – $10(#Tickets) – $2000 = $0
(30-10)(#Tickets) – 2000 = 0
20(#Tickets) – 2000 = 0
20(#Tickets) = 2000
#Tickets = 2000/20
#Tickets = 100
30
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) – $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
20(#Tickets) – 2000 = 0
20(#Tickets) = 2000
#Tickets = 2000/20
#Tickets = 100
31
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) – $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
20(#Tickets) = 2000
#Tickets = 2000/20
#Tickets = 100
32
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
20(#Tickets) = 2000
#Tickets = 2000/20
#Tickets = 100
33
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
20(#Tickets) = 2000
#Tickets = 2000/20
#Tickets = 100
34
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = 0
$20(#Tickets) = $2000
#Tickets = 2000/20
#Tickets = 100
35
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
$20(#Tickets) = $2000
#Tickets = $2000/$20
#Tickets = 100
36
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
$20(#Tickets) = $2000
#Tickets = $2000/$20
#Tickets = 100
37
 Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit
Breakeven is the point where Profit = 0
$30(#Tickets) - $10(#Tickets) – $2000 = $0
($30-$10)(#Tickets) – $2000 = $0
$20(#Tickets) – $2000 = $0
$20(#Tickets) = $2000
#Tickets = $2000/$20
#Tickets = 100
38
 Graphic Solution
5000
4500
4000
3500
$ 3000 Fixed Cost
2500 Variable Cost
Total Cost
2000
Revenue
1500
1000
500
0
0 25 50 75 100 125 150

Units Sold 39
 Proving the Solution
• Plug solution into the original equation:

$30(#Tickets) – $10(#Tickets) – $2000 = $0

$30(100) – $10(100) – $2000 = $0
$3000 – $1000 – $2000 = $0

40
 Critical Thinking Questions
• Is this quantity of tickets feasible?
• Why or why not?

41
 LSA #4 Check on
Learning
Q1. Does the Unit Contribution Margin appear in
the Breakeven Equation?
A1. Yes, indirectly. Contribution Margin is
equal to Revenue – Variable Cost

42
 LSA #4 Summary
• During this lesson, we conducted a
demonstration exercise identifying key
variables, defining a contribution margin, and
then calculating a breakeven point in units
using an equation.

43
 Sample Problem – Target
Profit
• How many tickets must be sold to yield a profit of
$500 per show? $1000 per show?
• How would you set up the equation?

44
 Sample Problem – Target
Profit (Cont.)
• How many tickets must be sold to yield a profit of
$500 per show? $1000 per show?
• How would you set up the equation?
• Use the Breakeven equation, replacing zero with the
target profit number:
$30(#Tickets) - $10(#Tickets) – $2000 = $500

45
Conduct Practical Exercise

46
 Using the Breakeven
Spreadsheet

Enter Data from

Practical Exercises
in Spaces Provided
Use Tabs to
Navigate

47
Using the Breakeven
Spreadsheet (Cont.)

“Breakeven Point” Tab

shows Graphic
Solution and Proof
Calculation
48
Using the Breakeven
Spreadsheet (Cont.)

Blue Area indicates

Contribution Margin at
Various Quantities

49
Using the Breakeven
Spreadsheet (Cont.)

“Cost” Tab Details

Fixed Cost, Variable
Cost, and Total Cost

50
Conduct Practical Exercise

51
 TLO Summary
Action: Calculate Breakeven Point in Units and Revenue Dollars
Condition: You are a cost advisor technician with access to all
regulations/course handouts, and awareness of Operational
Environment (OE)/Contemporary Operational Environment
(COE) variables and actors
Standard: With minimum of 80% accuracy:
• Identify assumptions underlying breakeven analysis
• Communicate key variables in breakeven equation from
scenario
• Define contribution margin 
• Enter relevant data into macro enabled templates to
calculate Breakeven Points and graph costs and revenues
52