1. BREAK EVEN ANALYSIS
Any business wants to make a profit on their investment of time and money
It is also a useful planning tool
Breakeven point is the point at which the net profit on the income statement equals zero.

2. Calculating Breakeven
Three methods
1. cost-volume-profit
analysis
2. contribution analysis
3. sensitivity analysis

3. Cost –volume - profit analysis:
Three key parts are:
fixed costs (operating expenses)
volume (break-even point in units)
profit (selling price minus
variable cost per unit.)

4. Contribution Analysis
Calculating breakeven requires determining how many contributions (selling price per unit minus variable costs per unit) are necessary to cover, or pay for, the product’s expected annualized operating costs (fixed costs)

5. Sensitivity Analysis
Marketing manager changes one of the input variables to see what difference the change makes o break even volume
It shows how sensitive break even is to changes in the numbers used to calculate it.

6. Breakeven Point When sales equals expenses / costs
Costs are either fixed or variable
Variable costs tend to vary directly with the number of units made / sold
Fixed costs tend to be relatively constant no matter how many units are made / sold

7. Unit Contribution
Unit contribution is the amount of money remaining after the variable costs of producing or purchasing one unit is subtracted from the selling price of one unit:
Selling price per unit – variable costs per unit = unit contribution

8. Total Contribution
Total contribution is determined by multiplying unit contributions times the number of units sold.
Unit contribution X Number of units sold = Total contribution
For retailers, unit contributions is
also referred to as markup or gross
margin.

9. Formula Break even Totals fixed costs Point =
(in units) selling price/ - variable cost
unit unit

10. Markups Retail (selling) price - cost = markup
Markup is the difference between the cost and the desired selling price of goods.
Should cover the expense of operating the business plus a desired profit
Retail (selling) price - cost = markup

11. Example Cost of merchandise is $75,000
The Operating expenses is $15,000
Desired profit is $10,000
Therefore sales must be $100,000
Sales ,000
COGS ,000
Markup ,000
Expenses 15,000
Profit ,000

12. Initial Markup
A pair of slacks that cost $50 is offered for sales at $100. What is the markup?
Retail Price – cost = markup
$100 - $ = $50.00

13. Markup Percentage Markup is usually calculated as a percentage
Markup = markup percent based on retail
Retail
Markup = markup percent based on cost
Cost

14. Markdowns Markdowns are a reduction in selling price Reasons –
High selling prices
Errors in buying
Errors in selling
Other markdowns reasons –eg. season

15. Markdowns
Markdowns are losses in selling price, so the smaller the markdown the less the loss
Markdowns attract customers but should occur early in the season
Deep markdowns occur only when necessary and losses will be large

16. Markdown Calculation Dollar Markdown Calculate the dollar markdown
Original retail X reduction Percent =
Dollar markdown

17. Calculate the amount of the sales
Original retail - $ markdown = sales (new retail)
Calculate the Markdown percent based on sales
Markdown % = Dollar markdown
Amount sold

18. Example
A furniture buyer ran a sale on kitchen furniture. The goods had an original retail price of $10,000 and were reduced for the event by $15%. All the goods were sold. Calculate the markdown percent based on sales.

19. Answer Original price X reduction % = Markdown dollars
2. Calculate the amount of the sales
Org. Retail – dollar Markdown = sales
$10,000 - $1,500 = $8,500
Calculate markdown %
Markdown% = Dollar markdown
Amount sold
=$1, = %
$8,500