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Financial Break-even Analysis

The document contains several examples calculating key metrics for products and companies such as contribution margin, break-even point, sales required to make a target profit, and the impact of changes in variables like price, costs, sales, and fixed expenses. It demonstrates how to use contribution margin, break-even, and margin of safety analyses to evaluate business performance and make budgeting and pricing decisions.

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James Wisley
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126 views28 pages

Financial Break-even Analysis

The document contains several examples calculating key metrics for products and companies such as contribution margin, break-even point, sales required to make a target profit, and the impact of changes in variables like price, costs, sales, and fixed expenses. It demonstrates how to use contribution margin, break-even, and margin of safety analyses to evaluate business performance and make budgeting and pricing decisions.

Uploaded by

James Wisley
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Sales

Variable cost
Contribution Margin
Fixed Expenses
Operating Profit

Contribution margin ratio


Break-even: sales in Dollars
4,500,000
1,800,000
2,700,000
1,200,000
1,500,000

60%
2,000,000
No. of Units 18000
Sales W 2.5 45000
Variable cost 1.675 30150
Contribution Margin 0.825 14850
Fixed Expenses 4290
Operating Profit 10560

Contribution margin ratio 0.33


Break-even: sales in Dollars 13000
CM ratio/unit 0.825
Break-even: sales in units 5200

Sales to produce profit of 8250 38000


38000 W
25460 12540=X -(1.675X/2.5)
12540 Where X represent sales
4290 Contribution Margin 12540
8250 Sales factor 0.33
Sales 38000
1)
Selling Prce/ Unit 50
Less: Variable Cost 30
Contribution Margin/ Unit 20

Fixed Cost 100000


Break-even: sales in units 5000

2) Break-even: sales in Dollars 250000

(3), (4)
No. of Units 7,500
Sales W1 50 375,000
Variable cost 225,000
Contribution Margin 150,000
Fixed Expenses 100,000
Operatng Proft 50,000

Volume in Units at 50,000 profit 7,500


Sales in Rupees at 50,000 profit 375,000

5) No. of Units 10,500


Sales W2 50 525,000
Variable cost 315,000
Contribution Margin 210,000
Fixed Expenses 160,000
Operatng Proft 50,000

Volume in Units at 50,000 profit 10,500


Sales in Rupees at 50,000 profit 525,000

6) No. of Units 11,500


Sales W3 50 575,000
Variable cost 345,000
Contribution Margin 230,000
Fixed Expenses 160,000
Operatng Proft 70,000
Volume in Units at 70,000 profit 11,500

7)
Selling Prce/ Unit 45
Less: Variable Cost 30
Contribution Margin/ Unit 15

Fixed Cost 100000


Break-even: sales in units 6666.67

8)
Selling Prce/ Unit 45
Less: Variable Cost 25
Contribution Margin/ Unit 20

Fixed Cost 100000


Break-even: sales in units 5000

9)
Selling Prce/ Unit 60
Less: Variable Cost 36
Fixed Cost 120000

No. of Units 7,917


Sales W4 60 475,000
Variable cost 285,000
Contribution Margin 190,000
Fixed Expenses 120,000
Operatng Proft 70,000

Volume in Units at 70,000 profit 7,917


W1

CM= Sales- Variable Cost


150,000=X -(30X/50)
Where X represent sales
Contribution Margin 150,000
Sales factor 0.4
Sales 375000

W2

CM= Sales- Variable Cost


210,000=X -(30X/50)
Where X represent sales
Contribution Margin 210,000
Sales factor 0.4
Sales 525000

W3

CM= Sales- Variable Cost


230,000=X -(30X/50)
Where X represent sales
Contribution Margin 230,000
Sales factor 0.4
Sales 575,000
W4

CM= Sales- Variable Cost


190,000=X -(36X/60)
Where X represent sales
Contribution Margin 190,000
Sales factor 0.4
Sales 475,000
Selling Prce/ Unit
Less: Variable Cost
Contribution Margin/ Unit

Fixed Cost W1
Break-even: sales in units

Break-even: sales in Dollars

No. of Units W2
Sales
Less: Variable Cost
Contribution Margin
Less: Fixed Cost
Operating Profit/(loss)

Total Profit for 2003


Total Profit for 2004

No. of Units (Sales/Price per unit)


Sales (Total salesxpercentage)
Less: Variable Cost
Contribution Margin
Less: Fixed Cost Balancing Figure
Operating Profit/(loss) (Profit 0f 2003x1.5)

Fixed Cost
Coca Cola Fanta Tarimo Total
1.5 1.2 1 3.7
1.4 1 0.4 2.8
0.1 0.2 0.6 0.9

19000 15200 3800


190000 76000 6333

285000 91200 6333

187970 150376 37594


281955 180451 37594
263158 150376 15038
18797 30075 22556
19000 15200 3800
-203 14875 18756

33429
50143

100000 208333 100000


150000 250000 100000
140000 208333 40000
10000 41667 60000
10305 19354 31865
-305 22313 28135

10305 19354 31865


W1

Fixed Cost=x+4x+5x,
where x is Tarimo units sold
Total Fixed Cost 38000
Tarimo Fixed Cost 3800
Fanta Fixed Cost 15200
Coca Cola Fixed Cost 19000

W2
Sales Revenue=1(1x)+(1.2*4x)+(1.5*5x),
where x is Unit Sales of Tarimo
Sales Revenue 500000
Product Factor 13.3
Tarimo unt Sales 37594
Fanta unit Sales (4xTarimo) 150376
Coca Cola unit Sales(Tarimo+Fanta) 187970
No of Units
Sale Price/Unit
Sales
Variable cost
Contribution Margin
Fixed Expenses
Operatng Proft

Sales price/unit

Selling Prce/ Unit


Less: Variable Cost
Contribution Margin/ Unit
Fixed Cost

Break-even: sales in units


Break-even: sales in Dollars

Margin of safety
50,000
(Sales/No of Unts) 100
Variable+C.M 5,000,000
84 4,200,000
Fixed+O.profit 800,000
540,000
260,000

100

100
84
16
540,000

33,750
3,375,000

(Sales-Break-even Sales) 1,625,000


Original Budget
Sale price/Unit
No of Unit
Variable Producton Cost to Sales
Variable Marketng Cost to Sales

Revised Budget
No of Unit
Sale price/Unit

Budgeted Profit
Sales
Less: Variable Cost

Contribution Margin
LessFixed Cost

Total Budgeted Profit

New Break-even:Sales in Dollars

b) C/M Rato
Contributon Margin
Sales
2
80000
24%
6%

68000
2.1

Budgeted Profit
142,800

Variable Producton Cost to Sales 33,915


Variable Marketng Cost to Sales 8,925
-42,840
99,960

Fixed Production Cost 40,000


Fixed Marketing Cost 52,400
-92,400
7,560

99,960

44%
116,600
265,000
a)
C/M Ratio
B/E Sales
Fixed Cost

Sales (CM/CM ratio)*100


Variable cost (Sales-C/M)
Contribution Margin
Fixed Expenses
Operating Profit

Margin of Safety Ratio

b)
Profit
Add:Fixed Expense
Contribution Margin

Sales

C/M Ratio
64%
160000
102400

250,000
90,000
160,000
102,400
57,600

36%

120,000
80000
200,000

400,000

50%
1)
Sales Price/unit
Less: Variable cost/Unit
CM/Unit

Fixed Cost
Break-even: sales in units(Passengers)
Break-even: sales in Dollars

2)
Operatng Profit
Add:Fixed Cost
Contribution Margin

No. of Passengers/flight to earn 70,000 Profit


660
60
600

4130000
6883
4543000

70000
4130000
4200000
W
W 70
CM= Sales- Variable Cost
240,000=(100*660*X) -(100*60*X)
Where X represent Passengers

Contribution Margin
Sales factor
No of Passenger
ales- Variable Cost
00*660*X) -(100*60*X)
represent Passengers

4,200,000
60000
70
Current Structure
Sales
Variable cost
Contribution Margin
Fixed Expenses
Operatng Profit

Break-even: sales in units


Break-even: sales in Dollars

Proposed Structure
Sales
Variable cost
Contribution Margin
Less: Advertsement Caution Available
Less: Fixed Expenses
Operatng Profit

Advertsement Caution Available

Sales Price/unit
Less: Variable cost/Unit
CM/Unit

Fixed Cost
Break-even: sales in units(Passengers)
Break-even: sales in Dollars
250,000
150,000
100,000
100,000
-

50000
250,000

300,000
150,000
150,000
(CM-OP-FC) 20,000
100,000
30,000

20,000

6
3
3

120,000
40,000
240,000
Option 1: Break-even Sales

Current Structure
Units
Sale price/Unit
Sales
Variable Cost/unit
Variable Cost

Variable cost ratio


C/M ratio
Fixed Cost
Break-even: sales in Dollars

Total Sales Revenue


Less: Variable Cost
Contribution margin
Less: Fixed Expense
Profit

Proposal 1

Units
Sale price/Unit
Sales
Variable Cost/unit
Variable Cost

Total Sales Revenue


Less: Variable Cost
Contribution margin
Less: Fixed Expense
Profit

Proposal 2
Units
Sale price/Unit
Sales
Variable Cost/unit
Variable Cost

Total Sales Revenue


Less: Variable Cost
Contribution margin
Less: Fixed Expense
Profit

Suggetion: Management of Z Ltd should opt Proposal 1 as it is providing


It means 590,000 units of product A should b
Option 1: Break-even Sales revenue is requred in total

Product A Product B Product C Total


460,000 1,000,000 380,000
3 2.45 4
1,380,000 2,450,000 1,520,000 5,350,000
1.20 1.67 2.60
552,000 1,670,000 988,000 3,210,000

60%
40%
1,710,000
4,275,000

5,350,000
3,210,000
2,140,000
1,710,000
430,000

Product A Product B Product C Total


590,000 1,000,000 380,000
2.75 2.45 4
1,622,500 2,450,000 1,520,000 5,592,500
1.20 1.67 2.60
708,000 1,670,000 988,000 3,366,000

5,592,500
3,366,000
2,226,500
1,770,000
456,500
Product A Product B Product C Total
650,000 1,000,000 380,000
2.55 2.45 4
1,657,500 2,450,000 1,520,000 5,627,500
1.20 1.67 2.60
780,000 1,670,000 988,000 3,438,000

5,627,500
3,438,000
2,189,500
1,770,000
419,500

opt Proposal 1 as it is providing more profit than the Current structure and Proposal 2.
0,000 units of product A should be produced at Rs. 2.75/unit
Option 2: Break-even Sales revenue is required Product wise

Current Structure Product A Product B


Units 460,000 1,000,000
Sale price/Unit 3 2.45
Sales 1,380,000 2,450,000
Variable Cost/unit 1.20 1.67
Variable Cost 552,000 1,670,000
Fixed Cost(based on Sales % in total Sales) 441,084 783,084

CM/Unit 1.80 0.78


Break-even: sales in units 245,047 1,003,954
Break-even: sales in Dollars 735,140 2,459,687
wise

Product C Total
380,000
4
1,520,000 5,350,000
2.60
988,000 3,210,000
485,832 1,710,000

1.40
347,023
1,388,091

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