Date: ______________________ Name: ___________________________

Breakeven Analysis Using Linear Functions

Defining Costs and Income

There are several types of costs to consider when conducting a breakeven analysis, so here's a refresher
on the most relevant.

● Fixed costs: These are costs that are the same regardless of how many items you sell. All start-up
costs, such as rent, insurance and computers, are considered fixed costs since you have to make these
outlays before you sell your first item.

● Variable costs: These are recurring costs that you absorb with each unit you sell. For example, if
you were operating a greeting card store where you had to buy greeting cards from a stationary
company for $1 each, then that dollar represents a variable cost. As your business and sales grow,
you can begin appropriating labour and other items as variable costs if it makes sense for your
industry.

Income: Income is the amount you earn from sales.

Profit: Profit is income minus the costs.

Breakeven Point: The point when income and costs are equal.

Example Problem:
1. Imagine your class is going to try to raise $400 by making school T-shirts. There is a
$150 set-up charge for the T-shirt design that you have designed. Once the design is set, it costs $4 for
each T-shirt. You feel it is possible to charge $10 for each T-shirt. How many T-shirts do you have to
sell before you break even, i.e., make enough money to cover your costs?

● Start with creating two different tables for the costs and income. What is your dependent and
independent variable?

Table 1: Cost: Table 2: Income

0 0

1 1

2 3

3 3

4 4

5 5
● Once you have created tables with few (five for example) values, graph them on the same set of axis.

● Do your lines cross? If so, what does the point represent?

● From the graph, what is the amount of money the class makes (profit) if 50 shirts are sold? (Hint:
Consider income and costs)

● What is the equation for the Total Cost line?

● How can we solve the equations to find the break-even point?

● As a follow-up, how many shirts have to be sold to raise the desired $400?

Practice Problems:

*Create tables and graphs on separate page using graphing paper for #2. For #3-6 you can use Desmos
Graphing Calculator*

2. Keo bakes apple pies for a living. She sells her apple pies for $15 each. Her monthly fixed costs are
$1200. Each apple pie costs $2.50 in materials.

● Start with creating two different tables for the costs and income. What is your dependent and
independent variable?

● Once you have created tables with few (five for example) values, graph them on the same set of
axis. (Hint – those should be straight lines) Remember to choose appropriate scale, label the axis and
the lines properly.

● Do your lines cross? If so, what does the point represent?

● From the graph, what is the amount of money Keo makes if she bakes 150 apple pies?

● What is the equation for the total cost function?

● What is the equation for the total sales (income) function?

● How can we solve the equations to find the break-even point?

3. A company that manufactures bicycles has a fixed cost of $100,000. It costs $100 to produce
each bicycle. The selling price per bike is $300.

● Write the cost function, C.

● Write the sales function, R.

● Graph both lines and find the point of intersection.

● Determine the break-even point. Describe what this means.

4. You plan to start your own greeting card business. Your start-up cost of buying a computer and
colour printer is 1400. You also want to run an advertisement for $50 a week for 4 weeks. Cost
of printing each card is 50 cents. You plan to selling each card for $ 1.80.
How many cards must you sell to equal or exceed your initial cost? Write an inequality that
models the situation. Solve the inequality to find the minimum number of cards you must sell.

● Write the cost function, C.

● Write the sales function, R.

● Graph both lines and find the point of intersection.

● Determine the break-even point. Describe what this means.

5. A cookie store owner spends 2 dollars on each cookie and 30 dollars on additional expenses. She
sells each cookie for 3 dollars.

● Write the cost function, C.

● Write the sales function, R.

● Determine the break-even point. Describe what this means.

6. Several students decide to start a t-shirt company. After initial expenses of $280, they purchase
each T-shirt wholesale for $3.99 each. They sell each T-shirt for $10.99. How many must they
sell to break even?