1. Calculate Breakeven Point in Units and Revenue Dollars
Intermediate Cost Analysis
and Management
4.2

2. How do NAF organizations do this?
User Fees
Costs

3. Terminal Learning Objective
Action: Calculate Breakeven Point in Units and Revenue Dollars
Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors
Standard: With minimum of 80% accuracy:
Identify assumptions underlying breakeven analysis
Communicate key variables in breakeven equation from scenario
Define contribution margin 
Enter relevant data into macro enabled templates to calculate Breakeven Points and graph costs and revenues

4. What is Breakeven? The Point at which Revenues = Costs
Revenues above the breakeven point result in profit
Revenues below the breakeven point result in loss
May be measured in units of output or revenue dollars
Represents a “Reality Check”
Is this level of revenue reasonable?
If not, what actions would yield a reasonable breakeven point?

5. Review: Cost Terminology
Fixed Costs –
Variable Costs - Costs that change in direct proportion with the volume produced or sold
Mixed Costs - A combination of fixed and variable costs
Semi-variable Cost - Costs that change with volume produced, but not in direct proportion
Costs that do not change in total with the volume produced or sold
Costs that change in direct proportion with the volume produced or sold
A combination of fixed and variable costs
Costs that change with volume produced, but not in direct proportion

6. LSA #1 Check on Learning
Q1. Which type of cost remains the same in total when units produced or sold increases? A1. Q2. Which type of cost remains the same per unit when units produced or sold increases? A2.
Q1. Which type of cost remains the same in total when units produced or sold increases?
A1. Fixed Cost
Q2. Which type of cost remains the same per unit when units produced or sold increases?
A2. Variable Cost

7. LSA #1 Summary
During this lesson, we discussed Cost terminology.

8. Identify Assumptions
The following are implied in the simple breakeven equation:
A single product or service
Clearly segregated fixed and variable costs
Variable costs are linear on a per-unit basis
If analyzing multiple products is desired:
Use “$1 of Revenue” as the Unit -or-
Use a weighted average unit

9. LSA #2 Check on Learning Q1. Why do we need assumptions? A1.
Q2. How many products do we use in breakeven analysis?
A2.
Q1. Why do we need assumptions?
A1. To simplify the analysis, following the Cost-Benefit and Materiality Constraints.
Q2. How many products do we use in breakeven analysis?
A2. Only one. Multiple products can overly complicate the analysis.

10. The Breakeven Equation
Revenue – Costs = Profit
Revenue - Variable Cost - Fixed Cost = Profit
Breakeven Point is where Profit = 0
Revenue - Variable Cost - Fixed Cost = 0
Revenue = Variable Cost + Fixed Cost
Revenue = #Units Sold * Selling Price $/Unit
Variable Cost = #Units Sold * Variable Cost $/Unit

11. Graphic Depiction of Breakeven$
Units Sold

12. Graphic Depiction of Breakeven (Cont.)$
Units Sold

13. Graphic Depiction of Breakeven (Cont.)$
Units Sold

14. Graphic Depiction of Breakeven (Cont.)$
Units Sold

15. Graphic Depiction of Breakeven (Cont.)$
Units Sold

16. Graphic Depiction of Breakeven (Cont.)$
Units Sold

17. Graphic Depiction of Breakeven (Cont.)$
Units Sold

18. LSA #3 Check on Learning
Q1. How is the breakeven equation expressed? A1. Q2. Which variables are represented on the graph by upward sloping lines? A2.
Q1. How is the breakeven equation expressed?
A1. Revenue – Variable Cost – Fixed Cost = Profit (which is zero at the breakeven point)
Q2. Which variables are represented on the graph by upward sloping lines?
A2. Revenue, Variable Cost, and Total Cost

19. LSA #3 Summary
During this lesson, we gave a graphic description of a graphed breakeven.

20. Sample Problem
The following costs are incurred per show at Sebastian’s Dinner Theater:
Facilities cost $500
Staff (actors who double as servers) 1000
Kitchen staff
Stage crew
Food cost (per ticket)
Ticket Price is $30
Task: Calculate Breakeven number of tickets.

21. Solving the Problem (part 1)
Identify the key variables in the equation
What are the fixed costs?
Facilities cost
Staff (actors who double as servers) 1000
Kitchen staff
Stage crew
Total
What are the variable costs?
$10 Food/Ticket * #Tickets
What is the revenue?
$30 Price/Ticket * #Tickets

22. Solving the Problem (part 1)
Identify the key variables in the equation
What are the fixed costs?
Facilities cost
Staff (actors who double as servers) 1000
Kitchen staff
Stage crew
Total
What are the variable costs?
$10 Food/Ticket * #Tickets
What is the revenue?
$30 Price/Ticket * #Tickets

23. Solving the Problem (part 1)
Identify the key variables in the equation
What are the fixed costs?
Facilities cost
Staff (actors who double as servers) 1000
Kitchen staff
Stage crew
Total
What are the variable costs?
$10 Food/Ticket * #Tickets
What is the revenue?
$30 Price/Ticket * #Tickets

24. Solving the Problem (part 1)
Identify the key variables in the equation
What are the fixed costs?
Facilities cost
Staff (actors who double as servers) 1000
Kitchen staff
Stage crew
Total
What are the variable costs?
$10 Food/Ticket * #Tickets
What is the revenue?
$30 Price/Ticket * #Tickets

25. Define Contribution Margin
Contribution Margin = Sales – Variable Cost
Unit Contribution Margin Represents the dollar amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit
What is the Unit Contribution Margin for Sebastian’s Dinner Theater?
For every ticket sold, profit increases by:
$30 - $10 = $20

26. Define Contribution Margin
Contribution Margin = Sales – Variable Cost
Unit Contribution Margin Represents the dollar amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit
What is the Unit Contribution Margin for Sebastian’s Dinner Theater?
For every ticket sold, profit increases by:
$30 - $10 = $20

27. Define Contribution Margin
Contribution Margin = Sales – Variable Cost
Unit Contribution Margin Represents the dollar amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit
What is the Unit Contribution Margin for Sebastian’s Dinner Theater?
For every ticket sold, profit increases by:
$30 - $10 = $20

28. Define Contribution Margin
Contribution Margin = Sales – Variable Cost
Unit Contribution Margin Represents the dollar amount that each unit sold Contributes toward profit
Unit Contribution Margin =
Selling Price $/Unit – Variable Cost $/Unit
What is the Unit Contribution Margin for Sebastian’s Dinner Theater?
For every ticket sold, profit increases by:
$30 - $10 = $20

29. Define Contribution Margin
Contribution Margin may be stated as a Percentage:
Unit Contribution Margin/Unit Selling Price
Sebastian’s Contribution Margin Percentage =
$20/$30 =
$20/$30 = approximately .67 or 67%
For every $1 of sale, profit will increase by approximately $.67

30. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) – $10(#Tickets) – $2000 = $0 (30-10)(#Tickets) – 2000 = 0 20(#Tickets) – 2000 = 0 20(#Tickets) = 2000 #Tickets = 2000/20 #Tickets = 100

31. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) – $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 20(#Tickets) – 2000 = 0 20(#Tickets) = 2000 #Tickets = 2000/20 #Tickets = 100

32. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) – $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 20(#Tickets) = 2000 #Tickets = 2000/20 #Tickets = 100

33. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 20(#Tickets) = 2000 #Tickets = 2000/20 #Tickets = 100

34. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 20(#Tickets) = 2000 #Tickets = 2000/20 #Tickets = 100

35. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = 0 $20(#Tickets) = $2000 #Tickets = 2000/20 #Tickets = 100

36. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 $20(#Tickets) = $2000 #Tickets = $2000/$20 #Tickets = 100

37. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 $20(#Tickets) = $2000 #Tickets = $2000/$20 #Tickets = 100

38. Solving the Problem (part 2)
Revenue – Variable Cost – Fixed Cost = Profit Breakeven is the point where Profit = 0 $30(#Tickets) - $10(#Tickets) – $2000 = $0 ($30-$10)(#Tickets) – $2000 = $0 $20(#Tickets) – $2000 = $0 $20(#Tickets) = $2000 #Tickets = $2000/$20 #Tickets = 100

39. Graphic Solution $
Units Sold

40. $30(#Tickets) – $10(#Tickets) – $2000 = $0
Proving the Solution
Plug solution into the original equation:
$30(#Tickets) – $10(#Tickets) – $2000 = $0
$30(100) – $10(100) – $2000 = $0
$3000 – $1000 – $2000 = $0

41. Critical Thinking Questions
Is this quantity of tickets feasible?
Why or why not?

42. LSA #4 Check on Learning
Q1. Does the Unit Contribution Margin appear in the Breakeven Equation?
A1. Yes, indirectly. Contribution Margin is equal to Revenue – Variable Cost
Q1. Does the Unit Contribution Margin appear in the Breakeven Equation?
A1. Yes, indirectly. Contribution Margin is equal to Revenue – Variable Cost

43. LSA #4 Summary
During this lesson, we conducted a demonstration exercise identifying key variables, defining a contribution margin, and then calculating a breakeven point in units using an equation.

44. Sample Problem – Target Profit
How many tickets must be sold to yield a profit of $500 per show? $1000 per show?
How would you set up the equation?

45. Sample Problem – Target Profit (Cont.)
How many tickets must be sold to yield a profit of $500 per show? $1000 per show?
How would you set up the equation?
Use the Breakeven equation, replacing zero with the target profit number:
$30(#Tickets) - $10(#Tickets) – $2000 = $500

46. Conduct Practical Exercise

47. Using the Breakeven Spreadsheet
Enter Data from
Practical Exercises
in Spaces Provided
Use Tabs to Navigate

48. Using the Breakeven Spreadsheet (Cont.)
“Breakeven Point” Tab shows Graphic Solution and Proof Calculation

49. Using the Breakeven Spreadsheet (Cont.)
Blue Area indicates
Contribution Margin at
Various Quantities

50. Using the Breakeven Spreadsheet (Cont.)
“Cost” Tab Details Fixed Cost, Variable Cost, and Total Cost

51. Conduct Practical Exercise

52. TLO Summary
Action: Calculate Breakeven Point in Units and Revenue Dollars
Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors
Standard: With minimum of 80% accuracy:
Identify assumptions underlying breakeven analysis
Communicate key variables in breakeven equation from scenario
Define contribution margin 
Enter relevant data into macro enabled templates to calculate Breakeven Points and graph costs and revenues