1. GOALS BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 1 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

2. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 2 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.

3. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 3 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.

4. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 4 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

5. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 5 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.

6. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 6 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.

7. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 7 Break-Even Point in Units = Fixed Costs (Sales Price per Unit – Variable Cost per Unit)

8. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 8 Break-Even Point in Sales Dollars Break-Even Point in Dollars = Break-Even Point in Units × Sales Price per Unit

9. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 9

10. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 10

11. BUSINESS MATH© Thomson/South-WesternLesson 11.2Slide 11