BREAK-EVEN

ANALYSIS
Break-even analysis is a financial tool that
helps businesses determine the point at
which their total revenue equals their total
costs. In other words, it helps businesses
determine the minimum amount of sales
they need to cover all their expenses and
start making a profit.

By calculating the break-even point,

businesses can understand how many units
of a product or service they need to sell to
cover all their costs. Once they surpass this
break-even point, every additional unit sold
will contribute to their profit.
The Snack Delight Shop produces bread rolls
Monthy fixed cost: 1,200 for rent
600 for utilities
900 for salaries
Variable cost: 8 for ingredients per unit
4 for packaging per unit
Seling price: 15 each

Solution:
BEP = TFC/Contribution
= 2,700/(15-12)
= 2,700/3
BEP = 900

The Snack Delight Shop needs to sell 900 bread rolls to reach
the break- even point, where they gain no profit but they
won't also have any loss.
BEP: When Total Revenue = Total Cost
SP × no. of units = FC + VC x no. of units
15 x 900 = 2,700 + (12 × 900)
13,500 = 13,500

Assuming that the number of units is 650.

Profit/Loss = TR - TC
= SP × no. of units - FC + VC x no. of units
= 15 x 650 - 2,700 + (12 × 750)
= 9,750 - 10,500
Loss = (750)
Assuming that the number of units is 1,300.
Profit/Loss = TR - TC
= SP × no. of units - FC + VC x no. of units
= 15 x 1,300 - 2,700 + (12 × 1,300)
= 19,500 - 18,300
Profit = (1,200)

Units = TFC + Target Profit / Contribution

= (2,700 + 12,000) / 12
= 14,700 / 12
Units = 1,225
Margin of Safety

Margin of Safety = Existing Sales - BEP

= 1,225 - 900
Margin of Safety = 325