BM PS 11 Q1 0304 PDF - Break-Even Business Mathematics

Lesson 3.4 Break-Even Business Mathematics Accountancy, Business, and Management 1  Break-Even Profit is an important factor in business. Recall from previous lessons that profit is gained when total sales exceed total costs and expenses. What happens...

Lesson 3.4 Break-Even Business Mathematics Accountancy, Business, and Management 1  Break-Even Profit is an important factor in business. Recall from previous lessons that profit is gained when total sales exceed total costs and expenses. What happens when total sales and total costs are equal? 15 The Concept of Break-Even no difference between total sales no profit or loss and total cost Break-Even no additional sales were at least money gained, but enough to cover all nothing is lost expenses 16  The Concept of Break-Even To represent the concept in an equation: 17  The Concept of Break-Even important in guaranteeing profit vital in deciding the proper pricing, volume of products, and overall business plan 18  Break-Even 1. A dozen eggs are bought for ₱96 and sold for ₱8 each. Was the selling transaction break-even? Solution: Since the difference between sales and cost is equal to 0, then the selling transaction was break-even. 19  Break-Even 2. Buying a ticket for two that is worth ₱4,500 and selling each for ₱2,250 results in a break-even. Is this correct? Solution: Since, the sales are equal to cost: yes, it resulted in a break-even. 20  Determining the Break-Even Point The point where revenue and total cost meet is called the break-even point. At this point, a business neither earns a profit nor experiences loss. 21  How to Determine Break-Even Point where: BEP = break-even point FC = total fixed cost VC = variable cost per unit P = price per unit 22  Example 1 1. The total fixed cost of a certain product is ₱36,000 while its variable cost per unit is ₱20. Determine the break- even point if each unit is sold for ₱80. total fixed cost = ₱36,000 variable cost per unit = ₱20 price per unit = ₱80 23  Example 1 Solution: Therefore, the break-even point is at 600 units. 24  Example 2 2. What is the break-even point of a small snack-house business if their total fixed cost and variable cost per unit are ₱6,000 and ₱70, respectively, and their food is priced at ₱150 each order? total fixed cost = ₱6,000 variable cost per unit = ₱70 price per unit = ₱150 25  Example 2 Solution: To reach break-even point, the small snack-house business must make 75 orders. 26  Problems Involving Break-Even Solving for the break-even point allows a business to determine its margin for safety. How much lower can the price get without risking loss? What is the minimum sales required to avoid loss? 29  Example 1 An artist makes handmade figurines at home. With a good number of orders, he is considering mass production of his artwork to sell in stores. He estimated a fixed cost of ₱76,000 for the equipment, whereas ₱100 for the labor and packaging of each item. If each figurine is sold for ₱900, what sales volume does he need to carry out to reach the break-even point? 30  Example 1 Solution Step 1: Identify what is required in the problem. You are asked to determine the sales volume to reach break-even point (BEP). 31  Example 1 Solution Step 2: Identify the given in the problem. ₱76,000 total fixed cost (FC) ₱100 variable cost per unit (VC) ₱900 price (P) 32  Example 1 Solution Step 3: Write the working equation. Step 4: Substitute the given values. 33  Example 1 Solution Step 5: Find the answer. The artist needs to produce 95 figurines to reach the break-even point. 34  Example 2 Gina sells halo-halo, and she is considering a new recipe. She wants to know if introducing a new recipe will have an impact on her business. Help her determine the break-even point given the following: fixed costs = ₱15,000 (total for the month) variable cost = ₱25 (per order) price per unit = ₱55 (per order) 35  Example 2 Solution Step 1: Identify what is required in the problem. You are asked to determine the break-even point (BEP). 36  Example 2 Solution Step 2: Identify the given in the problem. ₱15,000 total fixed cost (FC) ₱25 variable cost per order (VC) ₱55 price per order (P) 37  Example 2 Solution Step 3: Write the working equation. Step 4: Substitute the given values. 38  Example 2 Solution Step 5: Find the answer. Gina has to sell 500 orders of her new recipe to break even. 39