Break-Even

Point Analysis
Break- common point between the
total revenue and the total cost

Even total revenue equals the total

cost
Point
(BEP) no profit but has no loss
 • TR = selling price per unit times the
Total number of units sold
• TC = FC + VC, (where VC = cost per
Revenue, unit times the number of units)
Total Cost •
•
Profit = TR - TC
At break even point, TR = TC
and Profit • TR - TC = 0

Functions •
•
Profit = 0
Unit Contribution Margin = FC/ (SP-VC)
 • A firm sells its products at P6 per unit. The product has a
variable cost of P3 per unit and the Company fixed cost is
P 9,000. Determine each of the following.
1. TR, TC and profit functions
Break-Even 2. Sales volume when profit is P9,000
3. Profit when sales are 600 units
Analysis: 4. The break-even quantity and revenue
Linear 5. The amount by which the variable cost per unit has to
be decreased or increased for the firm to break even at
Function 2,000 units. Assume that the selling price and the fixed
cost remain constant.
6. The new selling price per unit in order to break even at
300 units, assuming the FC and VC remain constant.
7. Number of units to sell to cover the fixed cost.
A firm sells its products at P6 per unit. The product
has a variable cost of P3 per unit and the Company
fixed cost is P 9,000. Determine each of the following.

Let x = number of units to sell

1.
• TR = 6x
• TC = 3x + 9000
since VC = 3x (VC = cost per unit times the number of
units)

• Profit = TR - TC
= 6× -（3×+9000）
P = 3x -9000
A firm sells its products at P6 per unit. The product has a variable cost of P3 per unit
and the Company fixed cost is P 9,000. Determine each of the following

• 2. Sales volume when profit is P9,000 • 4. BEP

If P = 9000, At break even: TR = TC
6x = 3× + 9000
in P = 3x - 9000 × = 3000
9000 = 3x - 9000 BEP quantity
× = 6000 units • To find the revenue:
TR = 6x
3. Profit when sales are 600 units 6(3000) = P 18,000
If x = 600 units
× = 3000
P = 3x - 9000
P = 3(600) - 9000 • BEP revenue, to find the revenue:
= 1800 - 9000
P = -7200 (loss) TR = 6x
6(3000) = P 18,000
 5. The amount by which the variable cost per unit has to be
decreased or increased for the firm to break even at 2,000 units.
Assume that the selling price and the fixed cost remain constant.
A firm sells its Let y - the new VC per unit. To break even at 2000 units, since VC
= cost per unit times the number of units sold,
products at P6 per
unit. The product new VC = 2000y;
has a variable cost • TC = VC + FC

of P3 per unit and original TC = 3x + 9000

the Company fixed new TC = 2000y + 9000

cost is P 9,000. at BEP: TR = TC

Determine each of 6(2000) = 2000y + 9000
the following y = 1.50
new variable cost per unit.
Since old VC is P3/unit, decrease therefore is P1.50 per unit.
 6. The new selling price per unit in order to break even at 300
units, assuming the FC and VC remain constant.
Let y = new selling price per unit
A firm sells its products at Number of units is 300.
P6 per unit. The product New TR = 300y;
has a vaA firm sells its
products at P6 per unit. The TC = 3x + 9000
product has a variable cost at break even,
of P3 per unit and the TR = TC
Company fixed cost is P
9,000. Determine each of 300y = 3(300) + 9000
the followingriable cost of y = P33 new selling price, to break even at 300 units
P3 per unit and the (checking is left to the student)
Company fixed cost is P
9,000. Determine each of 7. To cover the fixed cost.
the following TR = FC
6x = 9000
× = 1500 units to sell to cover the fixed cost.
Solve:
Consider a firm that buys units for P 10 and sells them for P15. There are no
other variable cost. Fixed costs are at P6,000. Use the break-even formula to
determine the following:

• TR. TC and profit functions.

• Sales volume when profit is P8,000.
• Profit when sales are 500 units.
• The break-even quantity and revenue.
• The amount by which the variable cost per unit has to be decreased or increased in order to
break even at 500 units. (Selling price and FC remain constant).
• The new fixed cost in order to break even at 800 units. Selling price and variable cost remain
constant.
• The new selling price per unit, to break even at 500 units, if VC and FC are constant.
Break-Even Analysis:
Non-Linear Functions
• To increase or maximize the profit, it is a
common belief that an increase in production
would increase the profit.
• But not true in general, for as the market
becomes saturated with the product, we
cannot expect to continue selling it at its
original price.
• The price should be decreased therefore
sometimes depends on the number of units
to purchase by the customer.
Example

A product sells at P 12 per unit. Fixed cost is P40 and the variable
cost per unit isP7. After observing that the sale of the product
has begun to decline, its per unit selling price is decreased by
10% of units sold. Variable cost and fixed cost remain unchanged

• Represent the new selling price per unit.

• Write the TR, TC and profit functions.
• Find the break-even point quantity and revenue.
• Find the profit at a sale of 50 units.
 c. At break-even point. profit = 0

Solutions: -.1×2 + 5x - 40 = 0
×2 - 50× + 400 = 0 multiplying the equation by = 10
(x- 10)(x- 40) = 0 Factoring the quadratic
trinomial
Let x = number of units sold • Equating both factors to zero, and solving for x:
a. New selling price = (12 - .1x) per × - 10 = 0 × - 40 = 0
unit x = 10 x = 40
x = 10 break-even qty x = 40 break-even qty

b. TR = (12 - .1x)x • Solving for the break-even revenues:

TR = 12x - .1×2 • If × = 10 If = 40
TC = 7× + 40 TR = 12x - 1×2 TR = 12x - 1×2
= 12(10) - 1(10)2 = 12(40) = 1(40)2
Since P = TR - TC
= 120- 10 = 480 - 160
P = (12x - .1×2) - (7× + 40) = 110 be. Revenue = 320 be revenue
P = 12x -.1×2 - 7× - 40
P= 5x-.1x2 – 40 or Therefore, there are two break-even points: (10, 110) and (40 , 320). This
means that selling less than 10 units as well as selling more than 40 units
P = -.1x2 + 5x - 40 would mean a loss for the company. We can show this by substituting
values in the profit functions. such as x = 9 and × = 41
Solutions:
d. P = -.1x2 + 5× - 40
If x = 50
P = -.1(50)2 + 5(50) -40
= -.1(2500) + 250 - 40
= -P40 loss