GOALS

Lesson 11.2 Slide 1BUSINESS MATH © Thomson/South-Western

11.2Break-Even Point

Calculate the break-even point for a product in units

Calculate the break-even point for a product in sales dollars

Lesson 11.2 Slide 2BUSINESS MATH © Thomson/South-Western

Decisions Based on Break-Even Point

To plan their operations, manufacturing firms must decide: How many units they expect to sell How many units to produce How much to spend to produce and sell these units At what price they must sell the units to make the

profit they want

To make these decisions, firms may calculate the break-even point.

Lesson 11.2 Slide 3BUSINESS MATH © Thomson/South-Western

Break-Even Point

The break-even point is the point at which income from sales equals the total cost of producing and selling goods.

It is the point at which the business will neither make a profit nor suffer a loss.

When sales exceed the break-even point, there is a profit.

When sales are less than the break-even point, there is a loss.

Lesson 11.2 Slide 4BUSINESS MATH © Thomson/South-Western

Finding the Break-Even Point

To find the break-even point, you need to know three things: Fixed costs for manufacturing the product Variable costs for manufacturing each unit of the

product Expected selling price of each unit of the product

Lesson 11.2 Slide 5BUSINESS MATH © Thomson/South-Western

Fixed Costs

Fixed costs are costs such as rent, salaries, heat, insurance, advertising, and other overhead costs that remain the same no matter how much of the product is manufactured or sold.

Lesson 11.2 Slide 6BUSINESS MATH © Thomson/South-Western

Variable Costs

Variable costs are costs such as raw materials, direct labor, and energy that vary or change directly with the amount of product produced and sold.

Lesson 11.2 Slide 7BUSINESS MATH © Thomson/South-Western

Break-Even Point in Units

Break-Even Point in Units =Fixed Costs

(Sales Price per Unit – Variable Cost per Unit)

Lesson 11.2 Slide 8BUSINESS MATH © Thomson/South-Western

Break-Even Point in Sales Dollars

Break-Even Point in Dollars = Break-Even Point in Units × Sales Price per Unit

Lesson 11.2 Slide 9BUSINESS MATH © Thomson/South-Western

Lesson 11.2 Slide 10BUSINESS MATH © Thomson/South-Western

Lesson 11.2 Slide 11BUSINESS MATH © Thomson/South-Western