1. Break Even Analysis

2. Break-Even Analysis Homework take up Mark-Up Analysis Fixed Costs
Variable Costs

3. Break-Even Analysis
This is the very first step in calculating the price at which to sell a product or service
Marketers will play with different prices in order to see how many sales need to be made in order to make the companies cover all of their costs
In order to calculate the Break-Even Analysis
Need to know Variable Costs (VC) & Fixed Costs (FC)

4. Break-Even Analysis
The number of units that a business must sell at a given price to cover its costs
Once the variable costs are covered – the rest of the “gross profit” goes to pay off the fixed costs
Gross profit is the amount the company makes on every unit sold (selling price – purchase price)

5. Break-Even Analysis
A teddy-bear manufacturing company sells its bears to retailers for an average price of $18. The variable costs are $3 per bear. The company’s fixed costs are $ How many bears need to be sold before the teddy-bear manufacturer turns a profit?

6. Break-Even Analysis
BREAK EVEN POINT (BEP) = fixed costs / gross profit
BEP = / (18-3)
BEP = / 15
BEP =
Therefore, after selling bears, the company will turn a profit

7. Break-Even Analysis
(Sales Price) * (# of Units) = (Variable Costs) * (# of Units) + Fixed Costs
18x = 3x
18x -3x =
15x =
x =
Therefore, the company needs to sell bears to turn a profit.

8. Break-Even Analysis Graphing Break-Even Analysis
MATH TIME!!! (go back to grade 9 or 10 math)
You will graph both the revenue and the costs
Bear Example
COSTS = 3x
REVENUES = 18x
Dollar Value
10 000
# of Units

9. Break-Even Analysis Another example:
A new pizza place has opened up across the street from BCI. Each piece of pizza costs them $0.75 of materials to make. The business paid $ for ovens, the building, advertising and other fixed costs. They expect to sell roughly 100,000 pieces of pizza in their first year of operation.
Based on their estimates, how
much should they charge in order
to make their money back in the
first year?

10. Break Even Analysis
The company must decide if the break-even point is realistic or not.
If not there are many things that can be done
Reduce the Variable Costs
Increase the Price
Decrease the selling price to
increase the demand
Increase the fixed costs in order
to stimulate demand
Increase Advertising

11. Economies of Scale
The more products a company makes, the lower the cost of product of each item
Picture a new company that makes its own playing cards – each pack may cost nearly $10 to produce
But Bicycle makes theirs for pennies per pack

12. Diseconomies of Scale Remember: Getting bigger isn’t always better
At some point – a company becomes too big in order to run efficiently
Have a hard time responding to the demands of their consumers & controlling the quality of the product (American Auto Industry)

13. Break-Even Assignment