5.5 Break Even Analysi

Fixed Cost - any cost that business has to pay regardless of what it produce itself

  • Ex

    • Rent

    • Interest Loan

    • Advertising Fee

    • Salaries

Variable Cost - any cost of production that does change in proportion to the level of output or sales.

  • raw materials

  • commission

  • package cost

Total Cost - the total of all the cost that are incurred that in the production process

Total Revenue - any revenue coming to a business usual from the sale of the products

Contribution- the sum of money that remains after all direct & VCs have been taken away from the sales revenue

  • cut human resources

    • get machinery

    • buy land

Break Even Analysis

Break Even- is when a business exist and makes neither profit or loss

  • show sales

  • quanity t

  • at what quanitty and above will they make more sales.

3 ways to calculate breakk even

  • Using the TC= TR Rule - more likely to use

  • Using the Unit contribution rule - more likely to use

  • looking @ a be chart … TC=TR - rare you need to know how to draw the chart

h 1.TC= TR

  • TC=TFC+(AVC*Q)= TR

    • TR= P*Q

  • TFC+(AVC*Q)=P*Q

  1. BEQ= TFC/UC = TFC/(P-AVC)