Business Mathematics

Week 8: Module 11
Module
13 Break - even Point

In the previous modules, you have learned about pricing, profit and loss,
and the discount. These topics talk about the processes and examples in buying
and selling. In this module, you will learn about break- even point and how this
topic will help you understand buying and selling.
Before going on to this module, kindly answer the preliminary test below.
Pre-Test:
Your score in this activity WILL NOT BE RECORDED but you are expected to
answer the questions as honest as you can. This will serve as the preliminary
assessment that could be helpful in evaluating you by your subject teacher.
DIRECTIONS: Read carefully each item. Choose the letter of the best answer for
each test item. Use a separate sheet for your answers.
1. Which of the following are not used in break-even point analysis?
I. Account statement
II. Billing statement
III. Income statement
IV. Statement of Assets, Liabilities and Net Worth
A. II, III, IV B. I, III, IV C. I, II, IV D. I, II, III
2. Which of the following is obtained from multiplying selling price per unit by
number of units?
A. Break-even point C. Total cost
B. Contribution margin D. Total revenue
3. It is a type of expenses that do not increase when number of units produced
increases.
A. Contribution margin C. Fixed Cost
B. Discount D. Variable cost
4. Which of the following is NOT used in break-even point analysis?
A. Contribution margin C. Fixed Cost
B. Discount D. Variable cost
5. Which of the following mathematical statement shows MORE profitable?
TR means total revenue and TC means total cost.
A. TR = TC B. TR < TC C. TR > TC D. TR ≥ TC
6. Which of the following are NOT classified as fixed cost?
I. Advertising of product
II. Piece rate labor
III. Raw materials
IV. Rent
A. II, III, IV B. I, III, IV C. I, II, IV D. I, II, III

2
7. If the total fixed cost is ₱301.00, selling price per unit is ₱10.00, and variable
cost per unit is ₱3.00, how many units of output is needed to break-even?
A. 41 B. 42 C. 43 D. 44
8. If the total fixed cost is ₱300.00, break-even point is 30 units, and variable
cost per unit is ₱2.00, how much is the selling price per unit?
A. ₱12.00 B. ₱18.00 C. ₱19.00 D. ₱23.00
9. How much is the unit contribution margin if the total number of units
produced to break-even is 60, total variable cost is ₱120.00, and the selling
price per unit is ₱10.00?
A. ₱1.00 B. ₱7.00 C. ₱8.00 D. ₱9.00
10. How much is the total cost if the variable cost per unit is ₱3.00, total
number of units produced is 1,100, and total fixed cost is ₱3,000.00?
A. ₱6,300.00 B. ₱14,600.00 C. ₱18,892.00 D. ₱19,000.00
11. If the B.E.P. in units was 350 and the selling price per unit was ₱10.0, what
was the total sales to break-even?
A. ₱480.00 B. ₱1,920.00 C. ₱2,050.00 D. ₱3,500.00
12. The break-even point in units is 450 and the selling price per unit is ₱11.00.
how much is the break-even point in pesos?
A. ₱4,950.00 B. ₱5,670.00 C. ₱6,800.00 D. ₱18,000.00
13. The total fixed cost is ₱500.00 and the unit contribution margin is ₱10.00.
What is the Break-even point in units?
A. 25 B. 50 C. 100 D. 5,000
14. How much is the operating profit if the contribution margin per unit is
₱9.00 and the number of units sold is 3 more than the BEP in units?
A. ₱3.00 B. ₱11.00 C. ₱27.00 D. ₱34.00
15. What is the operating profit in the break-even point?
A. ₱0 B. ₱1.00 C. ₱2.00 D. ₱3.00

Well done! Thank you for taking the test. Now, you can proceed to the
next activity.

3
 Jumpstart

For you to know more about the lesson, do the following activity. Have
fun and good luck!

Activity: Find me!

Directions: Find the following words in the crossword by enclosing each. The
words in the table may be in a horizontal, vertical, or diagonal line. Record the time
to finish the game.
BREAKEVEN FIX SALES
BUSINESS LOSS SELLING
BUYING PRICE TOTAL
COST PROFIT UNIT
EXPENSES REVENUE VARIABLE

E X T R U R I C P R O F I T G

E X P E N S E S K E H T N N U

B B S T S I T I E V E N O I E

R O L O S T B N Y E I H S O S

E S I T O B U Y I N G L B R S

A T R A A U N I E U V I U E M

K I U L O S S B Y E P W S R S

E M P N M I E R S G J F I X O

V A R I A B L E T A K A N B R

E S I B L A L A N O L N E K G

N R C O S Y I K F H O E S S F

Z X E G F R N E V T O O S E O

A B A H E L G V E Y N A E D H

C O S T U M E E S M A T H S C

X S A W U N I T R O B R O S E

If you find all 15 words in 150 seconds, you are indeed a master hunter!

4
 Discover

In the previous activity, you have learned that there are words like revenue
and cost linked to break-even. Let us know more about these words with the help
of the income statement below.

The income statement below shows the results of operation of Ben Dilan
Photoshop. This business develops pictures of the same size and sell them with a
reasonable price.

BEN DILAN PHOTOSHOP

Income Statement
For the Year Ended December 31, 201A

Sales (15,000 pictures at ₱19.00) ……………………. ₱285,000

Less
Variable costs of goods sold (15,000 x ₱8.00) … ₱120,000
Variable selling costs (15,000 x ₱2.00) …………. ₱30,000 ₱150,000
Contribution Margin ……………………………………. ₱135,000
Less
Fixed Costs ……………………………………………. ₱8,001
Operating Profit …………………………………………… ₱126,999

Total revenue refers to the total sales based on the total number of units of
outputs produced and sold. This may also refer to gross sales because it is located
at the first line of the income statement proper, labeled as Sales.

By formula,

= ∙

where TR is the Total Revenue,

P is the Average selling price per unit (P), and
X is the number of Units of output produced and sold.

Example: Ben Dilan Photoshop

Total revenue = Selling price per unit x number of units sold

= ₱19.00 x 15,000
= ₱285,000

5
 Expenses, on the other hand, are costs spent to make the revenue.
Expenses may refer to variable cost and fixed cost.

Variable cost (V) is the amount of expenses that is directly proportional to

the number of units produced and sold (x). As the number of units increases, so
does the variable cost. Examples of variable costs are raw materials, sales
commissions, delivery fee or shipping fee, advertisements, and the like. Compute
variable costs in Ben Dilan Photoshop.

Variable costs of goods sold = Variable cost per unit x number of units
= ₱8.00 x 15,000
= ₱120,000
Variable selling costs = Variable cost per unit x number of units
= ₱2.00 x 15,000
= ₱30,000

Variable costs of goods sold may refer to amount spent for raw materials to
create pictures and variable selling costs may refer to delivery fee.

Total Variable cost = Variable costs of goods sold + Variable selling costs
= ₱120,000 + ₱30,000
= ₱150,000

Fixed cost (FC), on the other hand, is the amount of expenses that do not
change regardless of the increase or decrease in the number of units produced and
sold. Examples of fixed costs are rent for office space, weekly payroll, amortization,
and the like. Unlike Variable cost, there’s no further computation for fixed cost. For
instance, the monthly rent for office space in Ben Dilan Photoshop is ₱8,001, this is
already the fixed amount that the owner pays every month.

So, total cost is the sum of total variable cost and the total fixed cost

Total cost = Total Variable Cost + Fixed Cost

= ₱150,000 + ₱8,001
= ₱158,001

Alternatively, the Total Cost Formula can be expressed as follows

= ∙ 

where TC is the Total Cost,

V is the Variable cost per unit,
X is the number of Units of output, and
FC is the Fixed Costs.
ALTERNATIVE SOLUTION:
= ∙ 
= LT T
= L T T
= L T

6
 If the total revenue is greater than the total costs, then there is a profit. And
if the total revenue is less than the total costs, you lose. In Ben Dilan Photoshop,
its total sales is greater than the total cost so it has operating profit of 126,999.00
(this profit is obtained by subtracting the total cost from the total revenue).

Profit may be calculated by subtracting the total costs from the total revenue.
In symbols,

ymbol = c 
ymbol = ∙ c ∙ 
ymbol = ∙ c ∙ c 

ymbol = c c 

However, if the Total Revenue equals Total Cost, then the business is said to
be in Break-even. This means that the business neither make a profit nor loss. To
determine the break-even point, calculate the number of units of output that
makes total revenue equal to total cost. Now, since there is no profit and no loss,
we can use zero (0) as a substitute.

ymbol = c c 
= c c 

Simplifying this further,

c = 

BREAK- EVEN POINT FORMULA


=
c

NOTE: If the math problem uses variables X, FC, P, and V, you can use the following
formulas if one variable is known and the other variables are unknown.

Finding the value of FC Finding the value of P Finding the value of V

when X, P, and V are when X, FC, and V are when X, FC, and P are
known known known
= c  
= = c

where V is the Variable cost per unit,

P is the selling price per unit,
X is the number of Units of output, and
FC is the Fixed Costs.

The c in the break-even formula is called unit contribution margin.

This is the difference between average selling price per unit and variable cost per

7
unit. It can be referred to as the leftover to cover fixed costs and then add to
operating profit.

Consider the sample income statement of Ben Dilan Photoshop in computing

the contribution margin:

SOLUTION A:
Unit Contribution Margin = Selling Price (P) – Total Variable Cost per unit (V)
= ₱19.00 – (₱8.00+₱2.00)
= ₱19.00 - ₱10.00
= ₱9.00

SOLUTION B:
Unit Contribution Margin = [ Total Revenue (TR) – Total Variable Cost (V)] ÷ Total
Number of Units Produced and Sold
= (₱285,000 - ₱150,000) ÷ 15,000
= ₱135,000 ÷ 15,000
= ₱9.00

To compute the break-even Point in Units:

BEP in Units (X) = Fixed Cost (FC) ÷ Unit Contribution Margin (P – V)


=
c
T
=
= pictures

Interpretation: This means that if you create and sell 889 pictures, you cannot
make a profit and will not incur any loss. Moreover, production of less than 889
pictures will incur loss in the business while production of more than 889 pictures
will make profit. Also, an increase of ₱9.00 (the unit contribution margin) in the
operating profit will be added for every picture in excess of 889. For example, the
owner created and sold 889 pictures, the operating profit will be ₱0, 890 pictures
will give ₱9.00, 891 pictures will give ₱18.00, and so on and so forth.

To compute the break-even Point in Pesos:

BEP in Pesos = BEP in units (X) x Selling price per unit (P)
=
= ͻT

Interpretation: This means that if you created 889 pictures and sold it for
₱16,891.00, you did not make any profit and no incurred loss. So, what will you do
now in order to make profit? You have to increase the production or increase the
number of pictures to be sold.

8
 Let us prove that break-even in this example can make a zero profit using
889 pictures only.

BEN DILAN PHOTOSHOP

Income Statement
For the Year Ended December 31, 201A

Sales (889 pictures at ₱19.00) ……………………. ₱16,891

Less
Variable costs of goods sold (889 x ₱8.00) …. ₱7,112
Variable selling costs (889 x ₱2.00) …………. ₱1,778 ₱8,890
Contribution Margin ……………………………………. ₱8,001
Less
Fixed Costs ……………………………………………. ₱8,001
Operating Profit …………………………………………… 0

Break-even Point Analysis is a guide for every business owner to plan for the
target profit or the target sales. Nobody wanted to operate business without profit.
Business is all about creating strategies that could lead to a more profitable
outcome. Thus, the examples presented in this lesson helped you in the decision-
making process as to how should a business prioritize production.

Explore

Here are some enrichment activities for you to work on to master and
Enric strengthen the basic concepts you have learned from this lesson.
hmen
t
Activity 1: Is it a Fact or a Bluff?

Directions: Read carefully each item and tell whether it is a fact or a bluff. Write
FACT if the statement is true, otherwise write BLUFF. Use a separate sheet for your
answers.

1. The variable X in the break-even formula refers to the number of items

produced and sold.
2. The operating profit in the break-even point is ₱1.00.
3. Total revenue is also known as the total sales.
4. Fixed cost is an example of expenses.
5. There are two types of expenses namely, variable cost and fixed cost.
6. Variable cost is the amount that doesn’t change despite of the increase in
the number of items.
7. Total cost is the sum of the total variable cost and total fixed cost.

9
 8. Profit is obtained by subtracting the total revenue from the total cost.
9. Unit contribution margin is obtained from multiplying the selling price per
unit by the number of units or items produced.
10. Break-even point in units refers to the number of items produced such that
the operating profit is 0.

Enrichment Activity 2: Complete me!

Directions: Fill in the needed data to complete the table below.

Selling Variable Unit

Total Fixed B.E.P. in B.E.P. in
Price per Cost per Contributi
Cost units Pesos
Unit Unit on Margin
1 ₱370.00 ₱14.00 ₱2.00
2 ₱1,600.00 ₱20.00 ₱4.00
3 ₱19,500.00 ₱15.00 ₱13.00
4 ₱960.00 ₱18.00 ₱15.00
5 ₱24.00 ₱3.00 69
6 ₱34.00 ₱3.00 150
7 ₱27.00 ₱5.00 100
8 ₱9.00 ₱7.00 ₱2,700.00
9 ₱11.00 ₱8.00 ₱1,562.00
10 ₱15.00 ₱11.00 ₱1,185.00

Enrichment Activity 3: Accept the Math Challenge!

Directions: Read carefully the word problem below to complete the income
statement and answer the questions that follows.

Mr. Juan Dilo-dilo is the owner of a convenient store. One of his products is
sugar where he bought 25 kg worth ₱60.00/kg. His 2 employees will repack the
sugar by ¼ kg in a plastic bag, so this will give 100 plastic bags of sugar. Each
sugar in plastic bag will be worth ₱25.00 each. The 2 employees are given a day to
finish repacking. Other expenses for sugar repacking are as follows:

Cost of a plastic bag = ₱0.90

Labor cost in a daily basis = ₱250.25 per employee

10
 Dilo- dilo’s Convenient Store
Income Statement
January

Sales ……………………………………………… __________

Less
Variable costs of goods sold …………. __________
Variable selling costs …………………. ₱90.00 __________
Contribution Margin …………………………. ₱910.00
Less
Fixed Costs ………………………………. __________
Operating Profit ………………………………. __________

Question 1. How many plastic bags of sugar can be made to break-even? Show
your solution.

Question 2. How much is the break-even point in pesos? Show your solution.

Question 3. How can these B.E.P in units and in pesos help Mr. Dilo-dilo manage
his business in sugar?

11
 Deepen

This time, you will create your own income statement that could serve as
your guide in the production of products. Note that you will be considered as the
manager of your own product. Do not hire employees because this is only a simple
business. Kindly use a separate sheet for this activity.

Experiment Time!

Developing Strategies Towards Profitable Food Business

What to do:
1. Think of a food product that interests you to sell.
2. What are the ingredients or materials that you will need to create this
product? You may ask your family members or the household members to
help you enumerate them.
3. In your answers in Procedure 2, how much will you spend for these
ingredients or materials? You may ask your family members to help you
compute the total cost of ingredients and materials.
4. How many units or products can you make out of the ingredients and
materials you have enumerated? Label your answer with Number of Units
Produced and sold denoted by X.
5. How much will be your product per piece? Label your answer with Selling
Price per Unit denoted by P.
6. Multiply your answer in Procedure 4 by your answer in Procedure 5. Label
your answer with Total Revenue denoted by TR.
7. Divide your answer in Procedure 3 by your answer in Procedure 4. Round off
your answer to four decimal places. Label your answer with Variable Costs
of Goods Sold per unit denoted by V.
8. Assume that your product will be delivered to the customer. Will you deliver
it per piece? If Yes, proceed to Procedure 9. If No, proceed to Procedure 10
9. How much will be the delivery fee per piece? Label your answer with
variable selling costs per unit denoted by V.
10. If it will be delivered in a pack, then get the average delivery fee. (e.g. if 1
pack contains 10 pieces and the delivery fee is ₱20.00 per pack, divide ₱20.00
by 10 to get ₱2.00. The average delivery fee per piece is ₱2.00). Now, how
much is your average delivery fee? Label your answer with variable selling
costs per unit denoted by V.
11. Of course, you need transportation in selling the product. Assume the
amount to be spent for the transportation allowance for one day of delivering
your product to the customer. Label your answer with Fixed cost denoted by
FC.

12
 Now, Complete the income statement below using your answers to the
procedures and answer the questions that follows.

My Food Business
Income Statement

Sales ……………………………………………… __________

Less
Variable costs of goods sold …………. __________
Variable selling costs …………………. _________ __________
Contribution Margin …………………………. __________
Less
Fixed Costs ………………………………. __________
Operating Profit ………………………………. __________

Note: Your operating profit should be greater than zero to proceed to the questions.
If operating profit is less than zero, this means that you fail to plan for a business.
To correct your plan, go back to the procedures and increase your answer in
Procedure 5 or review the ingredients and materials used.

Questions:
A. Is your food business profitable? Why do you say so?

B. What is the Break-even point in units and in pesos for your food business?

C. How can Break-even point analysis help you with your business grow or
become more profitable?

13
 Gauge

Directions: Read carefully each item. Use a separate sheet for your answers. Write
only the letter of the best answer for each test item.

1. What financial statement is used in break-even point analysis?

A. Account statement
B. Billing statement
C. Income statement
D. Statement of Assets, Liabilities and Net Worth
2. Which of the following is known as the “gross sales”?
C. Break-even point C. Total cost
D. Contribution margin D. Total revenue
3. It is a type of expenses that increases when number of units produced also
increases.
C. Contribution margin C. Fixed Cost
D. Discount D. Variable cost
4. This amount is used to determine the number of units to be produced in
order to cover fixed cost.
C. Contribution margin C. Fixed Cost
D. Discount D. Variable cost
5. Which of the following mathematical statement shows break-even point?
TR means total revenue and TC means total cost.
B. TR = TC C. TR > TC
C. TR < TC D. TR ≥ TC
6. Which of the following is classified as fixed cost?
B. Advertising of product C. Raw materials
C. Piece rate labor D. Rent
7. If the total fixed cost is ₱400.00, selling price per unit is ₱12.00, and variable
cost per unit is ₱2.00, how many units of output is needed to break-even?
B. 40 B. 44 C. 46 D. 100
8. If the total fixed cost is ₱250.00, break-even point is 36 units, and variable
cost per unit is ₱1.00, how much is the selling price per unit?
B. ₱2.00 B. ₱8.00 C. ₱15.00 D. ₱23.00
9. How much is the unit contribution margin if the total number of units
produced to break-even is 80, total variable cost is ₱120.00, and the selling
price per unit is ₱10.00?
B. ₱1.00 B. ₱7.25 C. ₱8.50 D. ₱9.00
10. How much is the total cost if the variable cost per unit is ₱6.00, total
number of units produced is 1,600, and total fixed cost is ₱5,000.00?
B. ₱12,000.00 B. ₱14,600.00 C. ₱18,892.00 D. ₱19,000.00
11. If the B.E.P. in units was 500 and the selling price per unit was ₱20.0, what
was the total sales to break-even?

14
 B. ₱480.00 B. ₱520.00 C. ₱750.00 D. ₱10,000.00
12. The break-even point in units is 800 and the selling price per unit is ₱21.00.
how much is the break-even point in pesos?
B. ₱9,829.00 B. ₱13,680.00 C. ₱16,800.00 D. ₱20,000.00
13. The total fixed cost is ₱440.00 and the unit contribution margin is ₱20.00.
What is the Break-even point in units?
B. 22 B. 420 C. 460 D. 8,800
14. How much is the operating profit if the contribution margin per unit is
₱8.00 and the number of units sold is 4 more than the BEP in units?
B. ₱20.00 B. ₱32.00 C. ₱64.00 D. ₱84.00
15. What is the operating profit in the break-even point?
B. ₱0 B. ₱1.00 C. ₱2.00 D. ₱3.00

Congratulations for reaching this far!

15