Break-Even Analysis

Basic Concepts and

Linear Profit Analysis
Welcome to our presentation on Break-Even Analysis! We'll explore
key concepts, calculate the break-even point, interpret the results, and
apply linear profit analysis in business decisions.

J by Jelian Tangaro
Introduction to
Break-Even Analysis
Break-Even Analysis is a powerful tool used by
businesses to determine the point at which total
revenue equals total costs. It helps assess
profitability and guide decision-making.
 Introduction to
Break-Even Analysis
Break-Even Analysis is a powerful tool used by
businesses to determine the point at which total
revenue equals total costs. It helps assess profitability and
guide decision-making.
Key Concepts and Definitions
1 Fixed Costs 2 Variable Costs 3 Contribution Margin
Expenses that don't change Expenses that vary with the
with the level of level of production, like The difference between
production, like rent and raw materials and labor. total revenue and total
salaries. variable costs.
Calculation of Break-Even Point
Formula
The Break-Even Point (BEP) can be calculated as
Fixed Costs divided by (Unit Selling Price - Variable
Costs per Unit).
Example
Let's say Fixed Costs are $10,000, Unit Selling Price
is $50, and Variable Costs per Unit is $25. The BEP
would be 400 units.
Interpreting Break-Even Analysis Results

Profitability Risk Assessment Decision-Making

If the actual sales exceed the The break-even point helps assess The break-even analysis aids in
break-even point, the business is the level of risk associated with a making informed decisions
profitable. specific business venture. regarding pricing, costs, and
production volume.
Linear Profit Analysis
Linear Profit Analysis focuses on using linear functions to calculate profit. It
assumes a linear relationship between revenue, costs, and volume of sales.
Calculating Profit using Linear Functions

Revenue Costs Profit

10 units $100 $50

20 units $200 $100

30 units $300 $150

Applying Linear Profit Analysis in
Business Decisions
1 Optimum Production Level
Identifying the volume of sales that maximizes profits.

2 Pricing Strategies
Using linear profit analysis to determine the most suitable pricing strategy for optimal
profitability.

3 Cost Control
Identifying cost drivers and taking necessary actions to minimize costs and maximize
profits.