Slides calculate breakeven point
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Calculate Breakeven Point
Principles of Cost Analysis and Management
© Dale R. Geiger 2011
1
How do NAF organizations do this?
User Fees
Costs
© Dale R. Geiger 2011
2
Terminal Learning Objective
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Action: Calculate breakeven point in units and revenue dollars
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Standard: With minimum of 80% accuracy:
Condition: You are a cost advisor technician with access to all regulations/course
handouts, and awareness of Operational Environment (OE)/Contemporary
Operational Environment (COE) variables and actors.
1.
2.
3.
4.
Identify assumptions underlying breakeven analysis
Identify key variables in breakeven equation from scenario
Defne contribution margin
Enter relevant data into macro enabled templates to calculate Breakeven Points and
graph costs and revenues
© Dale R. Geiger 2011
3
What is Breakeven?
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The Point at which Revenues = Costs
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Revenues above the breakeven point result in proft
Revenues below the breakeven point result in loss
May be measured in units of output or revenue dollars
Represents a “Reality Check”
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Is this level of revenue reasonable?
If not, what actions would yield a reasonable breakeven point?
© Dale R. Geiger 2011
4
Review: Cost Terminology
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Fixed Costs - Costs that do not change in total with the volume produced or sold
Variable Costs - Costs that change in direct proportion with the volume produced or
sold
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Mixed Costs - A combination of fxed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct
proportion
© Dale R. Geiger 2011
5
Review: Cost Terminology
•
•
Fixed Costs - Costs that do not change in total with the volume produced or sold
Variable Costs - Costs that change in direct proportion with the volume produced or
sold
•
•
Mixed Costs - A combination of fxed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct
proportion
© Dale R. Geiger 2011
6
Review: Cost Terminology
•
•
Fixed Costs - Costs that do not change in total with the volume produced or sold
Variable Costs - Costs that change in direct proportion with the volume produced or
sold
•
•
Mixed Costs - A combination of fxed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct
proportion
© Dale R. Geiger 2011
7
Review: Cost Terminology
•
•
Fixed Costs - Costs that do not change in total with the volume produced or sold
Variable Costs - Costs that change in direct proportion with the volume produced or
sold
•
•
Mixed Costs - A combination of fxed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct
proportion
© Dale R. Geiger 2011
8
Review: Cost Terminology
•
•
Fixed Costs - Costs that do not change in total with the volume produced or sold
Variable Costs - Costs that change in direct proportion with the volume produced or
sold
•
•
Mixed Costs - A combination of fxed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct
proportion
© Dale R. Geiger 2011
9
Check on Learning
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Which type of cost remains the same in total when units produced or sold
increases?
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Which type of cost remains the same per unit when units produced or sold
increases?
© Dale R. Geiger 2011
10
Identify Assumptions
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The following are implied in the simple breakeven equation:
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A single product or service
Clearly segregated fxed and variable costs
Variable costs are linear on a per-unit basis
If analyzing multiple products is desired:
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Use “$1 of Revenue” as the Unit -orUse a weighted average unit
© Dale R. Geiger 2011
11
Check on Learning
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Why do we need assumptions?
How many products do we use in breakeven analysis?
© Dale R. Geiger 2011
12
The Breakeven Equation
Revenue – Costs = Proft
© Dale R. Geiger 2011
13
The Breakeven Equation
Revenue –Costs = Proft
Revenue - Variable Cost - Fixed Cost = Proft
© Dale R. Geiger 2011
14
The Breakeven Equation
Revenue –Costs = Proft
Revenue - Variable Cost - Fixed Cost = Proft
Breakeven Point is where Proft = 0
Revenue - Variable Cost - Fixed Cost = 0
Revenue = Variable Cost + Fixed Cost
© Dale R. Geiger 2011
15
The Breakeven Equation
Revenue –Costs = Proft
Revenue - Variable Cost - Fixed Cost = Proft
Breakeven Point is where Proft = 0
Revenue - Variable Cost - Fixed Cost = 0
Revenue = Variable Cost + Fixed Cost
Revenue = #Units Sold * Selling Price $/Unit
Variable Cost = #Units Sold * Variable Cost $/Unit
© Dale R. Geiger 2011
16
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Column1
Column1
Column1
Revenue
3000
2500
2000
1500
1000
500
0
Column3
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
17
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Column1
Variable Cost
Variable Cost
Revenue
3000
2500
2000
1500
1000
500
0
Column2
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
18
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Fixed Cost
Variable Cost
Variable Cost
Revenue
3000
2500
2000
1500
1000
500
0
Column1
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
19
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Fixed Cost
Variable Cost
Total Cost
Revenue
3000
2500
2000
1500
1000
500
0
0
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
20
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Fixed Cost
Variable Cost
Total Cost
Revenue
3000
2500
2000
1500
1000
500
0
0
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
21
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Fixed Cost
Variable Cost
Total Cost
Revenue
3000
2500
2000
1500
1000
500
0
0
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
22
Graphic Depiction of Breakeven
$
5000
4500
4000
3500
Fixed Cost
Variable Cost
Total Cost
Revenue
3000
2500
2000
1500
1000
500
0
0
25
50
75
100
Units Sold
© Dale R. Geiger 2011
125
150
23
Check on Learning
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•
How is the breakeven equation expressed?
Which variables are represented on the graph by upward sloping lines?
© Dale R. Geiger 2011
24
Sample Problem
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The following costs are incurred per show at Sebastian’s Dinner Theater:
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Facilities cost
$500
Staff (actors who double as servers)
1000
Kitchen staff
200
Stage crew
300
Food cost (per ticket)
10
Ticket Price is $30
Task: Calculate Breakeven number of tickets.
© Dale R. Geiger 2011
25
