TUTORIALS

Breakeven Analysis

Breakeven analysis is used to designate the stages of operations essential to recuperate all rate and to appraise the productivity associated with numerous levels of transactions. Corporations use breakeven analysis or what we can also call as cost-volume-profit analysis to calculate the profitability accompanying with innumerable level of sales in where earnings before interest and taxes are flat in 0.

As one of the first step in getting the operating breakeven point, it is a need to split the cost of products that are vended and operating systems expenses into fixed and operating variable cost.

In getting the values of each factor, here is an algebraic explanation and formulas that can be used further.

Let:

P = Sale Price For Each Unit

Q = Sales Units Number

FC = Fixed Operating Cost and

VC = for variable operating cost.

These factors can also determine the EBIT with the formula:

EBIT = Q (P-VC) – FC

As for getting the other factors, here’s the formula you can interchange with:

                                                                                Q = FC/P-VC

To put everything under one example, let’s say a company has a fixed operating cost of 8,000. The price of their products is 72 while variable operating cost is 8.3.

                                                                                Q = 8000/72-8.3

                                                                                Q = 8000/63.7

                                                                                Q = 125.59

To get the EBIT, Q in which we found out its value of 12.59 will be now easily used.

                                                                                EBIT = 125.59 (72-8.3) - 8000 

EBIT = 125.59 (63.7) – 8000

                                                                                EBIT = 8000.083 – 8000

                                                                                EBIT = 0.083