Break Even Analysis (1)

Business Mathematics
Break-even Analysis and

Problem Solving Involving Buying and Selling
Products
LJ Pasaol
In this module, you will be able to:
• determine the break-even point; and

• solve problems involving buying and selling
products.
Specifically, you are expected to:

1. illustrate the break-even point;
2. compute for the break-even point; and
3. solve problems involving buying and selling
products.
In the previous discussion, you have learned how to
obtain profit and avoid loss in a given transaction.
Now, let us have a review.
Solve the following problems below.

The annual earnings (in million = 50(5)−10
pesos) of a calculator
= ₱240
manufacturer is given by
( )=50 −10, how much is the
profit when 5 calculators are
sold?
2. Carlos bought a = 27,000−25,000
computer desktop for = ₱2,000.00
₱22,000.00 and
₱5,000.00 for its spares.
He later sold it for
₱25,000.00. How much is
Carlos’ loss?
3. Ben bought two digital 3. = 15,490(2)
cameras at ₱15,490.00 =₱30,980.00
each. He sold one of the
cameras to his friend at = 13,500+1620
₱13,500.00 while the =₱29,700.00
other one was sold to his
neighbor at ₱16,200.00. = 30,980−29,700
How much is Ben’s profit =₱1,280.00
or loss?
Important Terms to Remember:
1. Fixed cost (FC) –

This is the cost of expenses that does not vary over
time on a certain relevant range, the number of
products sold, and production of goods to be sold.
This may also include payment for lease and rental,
salaries of workers, insurance, and interests.
2. Variable Cost (VC) –
This may refer to the amount of money spent for

raw materials used in the production of the goods
including the labor, utility expenses, and
commissions. This means that this cost varies
depending on the number of units of goods
produced.
3. Total Cost (TC) –
This is the sum of the fixed cost and variable cost.
4. Selling Price (SP) –

This is the price of the product being sold.
Why Use Break-Even Analysis?
Break-even analysis is the process used to

determine the number of units of products to sell in
order to cover the costs. It is necessary for business
owners to determine the quantity of products to sell
for them to avoid loss.
What is the Breakeven Point (BEP)?
Break-even point is the number of units of goods or

products needed to be sold in order to cover the all
the costs.
The Break-Even Point can be solved using the given
formula below.
Break-even Point =
In symbols,
=
How to Solve for the Break-Even Point?
To solve for the break-even point, the steps are as
follows:
1. Identify and/or compute for the total fixed cost.
2. Identify and/or compute for the variable cost per
unit.
3. Identify the selling price per unit.
4. Substitute the values in Steps 1 to 3 to the given
formula and solve for the break-even point.
5. Check your answer.
6. Make your conclusion.
Example:
Regine sells apples at the local market. She pays

₱100.00 daily for the rental of space and spends
₱20.00 to buy each apple which she sells for ₱30.00.
Solve for the break-even point.
Solution:
1. Identify and/or Fixed Cost (FC) = ₱100.00
compute for the total (daily rental)
fixed cost.
2. Identify and/or Variable Cost (VC) per
compute for the variable unit = ₱20.00
cost per unit.
3. Identify the selling Selling Price (SP) = ₱30.00
price per unit.
Solution:
4. Substitute the values in BEP=
Steps 1 to 3 to the given
formula and solve for the BEP=
break-even point. BEP = 10 units
Solution:
5. Check If Regine will be able to sell 20 units,
your Net Sales: (BEP × SP) ₱300.00
answer. Less: Variable Cost (BEP × VC )₱200.00
Contribution Margin: ` ₱100.00
Less: Fixed Cost ₱100.00
Profit/Loss: ₱0
Solution:
6. Make your Since the profit or loss is 0,
conclusion. hence, the break-even point is
10 units. Therefore, Regine
has to sell 10 apples for her to
break-even.
Read situation below. Analyze and answer what is asked.
Just encircle the letter of the correct answer.
Jhonny is planning to run a coffee shop where he plans to

sell each cup of coffee at ₱50.00. The fixed cost that is
amounting to ₱40,000.00 includes all his expenses for the
rent, wages, basic needs and others. So even if Jhonny will
not be able to sell, he is still obliged to pay this amount. If
it costs Jhonny an average of ₱10.00 for every cup of
coffee which is allotted for the bulk of coffee beans,
purified water and coffee filters, then:
1. What equation represents the variable cost (VC) when
x is the number of cups of coffee?
A. =5
B. = 10
C. =5
D. = 5
Explanation: In the situation, ₱10.00 is the variable cost,

since the price varies and cost of material changes.
2. What is the break-even quantity? {Show solution at the
back (plus 5 points)}
Solution:
A. 50 cups of coffee
B. 100 cups of coffee FC = 40,000
C. 500 cups of coffee VC= 10
D. 1,000 cups of coffee SP = 50
BEP=
BEP=
BEP= 1,000
3. Which of the following ordered pairs determine a
break-even point?
A. (500, 1000)
B. (1000, 50000)
C. (1500, 50000)
D. (5000, 1000)
Explanation:
Since we are looking for the ordered pair, 1000 cups of
coffee (From number 2) is all we need to have a break
even point.
4. How much profit will he earn if he sells 500 cups?
{Show solution at the back (plus 5 points)}
A. ₱20,000.00
B. ₱40,000.00
C. incur loss of ₱20,000.00
D. cannot be determined
Solution:
Net Sales: (BEP × SP) (500)(50) = 25,000

Less: Variable Cost (BEP × VC ) (10)(500)= 5,000
Less: FC= 40,000
Profit/Loss: -20,000
Therefore it will incur loss of ₱20,000.00

10. How many cups of coffee must be sold to earn a profit
of ₱50,000.00?
a. 1,250
b. 1,500
c. 2,250
d. 2,500
Solution:
FC = 40,000.00 (Solve by Trial and error)
For 1,200 For 1,500 For 2,250
Net Sales: (1200)(50) = 60,000 Net Sales: (1500)(50) = 75,000 Net Sales: (2250)(50) = 112,500
(Less) (Less) (Less)
VC= (BEP × VC ) (1200)(10)= 12,000 VC= (BEP × VC ) (1500)(10)= 15,000 VC= (BEP × VC ) (2250)(10)= 22,500
FC = 40,000 FC = 40,000 FC = 40,000
Profit/Loss: 8,000 Profit/Loss: 20,000 Profit/Loss: 50,000

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Business Mathematics

Break-even Analysis and

• determine the break-even point; and

Specifically, you are expected to:

Solve the following problems below.

1. Fixed cost (FC) –

This may refer to the amount of money spent for

4. Selling Price (SP) –

Break-even analysis is the process used to

Break-even point is the number of units of goods or

Regine sells apples at the local market. She pays

Jhonny is planning to run a coffee shop where he plans to

Explanation: In the situation, ₱10.00 is the variable cost,

Net Sales: (BEP × SP) (500)(50) = 25,000

Therefore it will incur loss of ₱20,000.00

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