Breakeven Analysis

1) Breakeven Revenue: (amount of revenue required to breakeven)

The number to enter in any of the fields below is a percentage between 1 and 99.
Provide the Variable Cost Ratio (VCR) = (Eg, 40)	OR	the Contribution Margin Ratio (CMR) = (Eg, 60)

2) Breakeven Units: (number of units to sell to breakeven)

To determine the unit sales required, complete part 1 and input either...
...the selling price per unit (SPU) = (Eg, 20)	OR	the Contribution Margin Per Unit (CMPU) = (Eg, 12)
...or complete both the SPU and CMPU (the VCR and CMR in part 1 will be automatically computed).

3) Target Profit and Sensitivity Analysis: (required sales to achieve a given profit)

• Target Profit = (Eg, 50000)


• The sensitivity analysis will be performed whenever the fields in section 1 or 4 are completed.
  

  (Optional) Range of sensitivity 10 20 30 40 50 60 70 80 90 (Eg, 50, for 50% range in sales around the breakeven point)
  Increments 1 2 3 5 7 10 (Eg, 10, for 10%-points increments)

4) Pricing: (To determine the price of a product)

• Click this button.


• (Required) Total fixed costs (per year) = (Eg, 400000)


• Variable cost per unit = (Eg, 75)
• Target return (margin you wish to gain on each unit sold, in %; Must be greater than 0) = (Eg, 18)
• Number of units you expect to sell = (Eg, 1000)



Always keep in mind: it is easier to lower a price than to raise it!

Vocabulary

• The Variable Cost Ratio is the ratio of Variable Cost to Sales.
  
VCR = Variable Cost / Sales
Alternatively, VCR = Variable Cost per unit / Selling Price


For instance, if variable cost per unit is , with a price per unit of , the VCR is equal to

The contribution margin per unit is the amount of revenue per unit that is available to "contribute" to fixed costs and to profit, since the variable costs are accounted for.

Change the numbers in the following fields to obtain an illustration pertinent to your case:
Variable cost (per unit or total variable costs) = ; Selling Price (per unit or total sales)=




• Sensitivity Analysis

The sensitivity analysis looks at the profit levels around the breakeven point. If you set the range to 50%, with increments of 10, then you will get a table with levels of income between 50% and 150% of the breakeven dollar point in increments of 10% points.
It is important to note that the higher the proportion of fixed costs, the more sensitive the profit: a small change in sales will impact the profit significantly when the proportion of variable cost to sales (the Variable Cost Ratio) is low.
Profit = Sales - Total Costs
Total Costs = Fixed Costs + Variable Costs

• Target profit
  Refers to the organizations profit goal. Companies are usually more concerned about realizing a specific profit level, as opposed to breaking even. By specifying the target profit required, you can compute the sales needed to achieve this target.

• Fixed costs and variable costs

A variable cost varies directly with the number of units produced. Each unit produced will incur a specific cost (materials required etc.), this cost to the company will increase in direct proportion to the number of units produced. That is, the more units that are produced, the greater the variable cost.
Typical variable costs are:
• Materials
• Commission/hourly wage
• Variable utilities (machine power etc.)

A fixed cost remains constant for a particular range of activity. That is, regardless of the number of units produced within a range, the fixed costs will remain constant.
Typical fixed costs are:

• Rent, mortgage
• Equipment
• Salary
• Fixed utilities (factory lighting etc.)

For instance, you decide to sell cookies next summer. Each cookie uses raw materials (flour, chocolate chunks...), packaging (plasting bags) and an amount of electricity (utility). All of these are variable costs.
You also need a kitchen to cook the cookies (a fixed cost: one stove you may rent or purchase allows you to cook, say, 1000 cookies a day; renting or purchasing a second stove, 1000 more), labor (people to cook, transport and sell the cookies), as well as a car (another fixed cost) to transport the cookies to the Point of Sale.

Feedback: verte@aol.com

http://businesstools.org/breakeven/breakeven.html, Javascript breakeven tool v 2.0b, June 2005
<!-- html page stored in Javascript variable for dynamic text replacement--> <html><head><title>Breakeven Results</title></head> <body background="../lightblue.gif"> <center><h2>Breakeven analysis results</h2><p><br><p> <img src="Lbreakeven.gif"> <br><p>Fixed Costs = <!DAT001> <br>Variable Costs = Number of units * <!DAT007> <br>Total Revenue = Number of units * <!DAT004> <br>Total Costs = <!DAT001> + Number of units * <!DAT007> <br> Breakeven sales (BES) = <!DAT016> <br> Breakeven in number of units sold (BEU) = <!DAT017> </center> <ul> <br><p><li><h3>Check the data that were entered or computed</h3></li> </ul> <center> <table border> <tr><td>Fixed Costs =</td><td> <!DAT001> </td></tr> <tr><td>Variable Cost Ratio =</td><td> <!DAT002> </td></tr> <tr><td>Contribution Margin Ratio =</td><td> <!DAT003> </td></tr> <tr><td>Selling Price =</td><td> <!DAT004> </td></tr> <tr><td>Contribution Margin Per Unit =</td><td> <!DAT005> </td></tr> <tr><td>Target Profit =</td><td> <!DAT006> </td></tr></table></center> <br><p> <ul><li><h3>Breakeven Analysis</h3></li> (Breakeven <!DAT042> Sales)<br> <!DAT032> </b> of sales must be achieved for turning a profit.<br><p> (Breakeven Unit Sales)<br> <!DAT033> </b> units must be sold to make a profit.<br><p> </ul> <ul> <li><h3>Target Profit Analysis</h3></li> Breakeven <!DAT042> Sales for Target Profit (BEST)<br><!DAT018> </b><br><p>Breakeven Unit Sales for Target Profit (BEUT)<br><!DAT019> </b> </ul><p> <center> <table border> <tr><th colspan=2>Income Statement</th></tr> <tr><td><tt>Sales = BEUT * Selling Price = <br>(-) Variable Costs = BEUT * Selling Price * Variable Cost Ratio = <br>(=) Contribution Margin = <br>(-) Fixed Costs = <br>(=) Net Income = </tt></td> <td> <!DAT020> <br> <!DAT021> <br> <!DAT022> <br> <!DAT001> <br> <!DAT023> </td></tr></table></center> <ul><br><p>To achieve the target income of <b><!DAT006> </b>, <b><!DAT039> </b> units of product must be sold, which corresponds to <b><!DAT038> </b> of sales.</ul><!DAT040> <br><p> <ul><li><h3>Sensitivity Analysis</h3></li></ul> <p><center> <table border> <tr> <th>Sales<br>Level</th><th>Units</th><th>Fixed<br>Costs</th><th>Variable<br>costs</th><th>Net Income</th><th>NI/Sales</th> </tr> <tr> <td><!DAT025> </td><td><!DAT026> </td><td><!DAT027> </td><td><!DAT028> </td><td><!DAT029> </td><td><!DAT030> </td></tr></table></center> <br><p> <B>Note:</b> You may Copy and Paste those results in a spreadsheet. Just click your mouse button before the first number in a column, and slide your mouse down with the button still depressed. Once the entire column is selected, choose Copy from the Edit menu, activate your spreadsheet, and Paste.<br><p> <ul><li><h3>Target Return Pricing</h3></li></ul><!DAT037> <center><table border> <tr><td>Fixed Costs</td><td><center>...</center></td><td>= <!DAT012> </td></tr> <tr><td>Variable Costs</td><td>= Variable Cost per unit * Demand<br>= <!DAT007> * <!DAT009> </td><td>= <!DAT046> </td></tr> <tr><td>Total Costs</td><td>= <!DAT012> + <!DAT046> </td><td>= <!DAT043> </td></tr> <tr><td>Target <!DAT042> Sales<br>needed to achieve<br>the target margin</td><td>= Total Costs / (1 - Profit Margin)<br>= <!DAT043> / (1 - <!DAT008> )</td><td>= <!DAT044> </td></tr> <tr><td><i>Margin in <!DAT042> </i></td><td><i>= Target Margin * Sales<br>= <!DAT008> * <!DAT044> </i></td><td><i>= <!DAT045> </i></td></tr> <tr><td>Recommended<br>Selling Price</td><td>= Target Sales / Demand<br>= <!DAT044> / <!DAT009> </td><td>= <!DAT024> </td></tr></table></center><p> <ul> When expecting <!DAT009> units to be sold, given a total fixed cost of <!DAT012> , a target margin of <!DAT008> per unit, and a variable cost per unit of <!DAT007> , the suggested price per unit is <b><!DAT024> </b>.</ul> <br><p><br><center><A HREF="javascript:close();">close</a><!DAT035> </body></html>