Class Activity

Sales Variable
Units Revenue Fixed Costs Costs Total Costs Profit
0 0 50 0 50 -50
1 15 50 5 55 -40
2 30 50 10 60 -30
3 45 50 15 65 -20
4 60 50 20 70 -10
5 75 50 25 75 0
6 90 50 30 80 10
7 105 50 35 85 20
8 120 50 40 90 30
9 135 50 45 95 40
10 150 50 50 100 50
11 165 50 55 105 60
12 180 50 60 110 70

Workpoint 1 Part a)
The break even quantity = FC/(P-VC)
BEQ = 200000/(90-70) = 10000 units
So, 10000 units have to be sold to break
even

In the graphs to the right, the y-axis is

the cost and the x-axis is the number of
outputs.
The red line shows the equation of the
total revenue from sales and the blue
line represents the equation for the total
costs. The purple line shows x = 60000
as it is the break-even quantity.

This set of equations were made

assuming that the fixed costs are
included in the $200000, but if the cost
of the produciton facility is taken
seperately, then follow method 2

Sales Variable
Units Revenue Fixed Costs Costs Total Costs Profit
0 0 200000 0 200000 -200000
3000 270000 200000 210000 410000 -140000
4000 360000 200000 280000 480000 -120000
5000 450000 200000 350000 550000 -100000
6000 540000 200000 420000 620000 -80000
7000 630000 200000 490000 690000 -60000
8000 720000 200000 560000 760000 -40000
9000 810000 200000 630000 830000 -20000
10000 900000 200000 700000 900000 0
11000 990000 200000 770000 970000 20000
12000 1080000 200000 840000 1040000 40000
13000 1170000 200000 910000 1110000 60000

Workpoint 1 Part b)
- By knowing the Break even point, you can price your products more effectively in order to cover the fixed
costs with fewer sales and earn higher revenue
- Another benefit of the analysis is the ability to catch and correct any errors in expenses that are missing
from the company's accounts
- Helps people starting a business make smarter decisions and limit financial strain. If their break even
analysis is perfected to be very profitable, it can attract new investors and help fund their company as well
- It helps set revenue targets and make calculations related to the safety margin revenue and their ability to
work at varying capacities

Workpoint 2 Part a)
2018 Graph
The break even quantity = FC/(P-VC)
BEQ = 350000/(5 - 4.5) = 700000 units
So, 700000 units have to be sold to
break even

2018 Graph
In the graphs to the right, the y-axis is
the cost and the x-axis is the number of
outputs.
The red line shows the equation of the
total revenue from sales and the blue
line represents the equation for the total
costs. The purple line shows x = 700000
as it is the break-even quantity.

Sales Variable
Units Revenue Fixed Costs Costs Total Costs Profit
0 0 350000 0 350000 -350000
100000 500000 350000 450000 800000 -300000
200000 1000000 350000 900000 1250000 -250000
300000 1500000 350000 1350000 1700000 -200000
400000 2000000 350000 1800000 2150000 -150000
500000 2500000 350000 2250000 2600000 -100000
600000 3000000 350000 2700000 3050000 -50000
 700000 3500000 350000 3150000 3500000 0
800000 4000000 350000 3600000 3950000 50000
900000 4500000 350000 4050000 4400000 100000
1000000 5000000 350000 4500000 4850000 150000
1100000 5500000 350000 4950000 5300000 200000
1200000 6000000 350000 5400000 5750000 250000

After Expansion Graph

The break even quantity = FC/(P-VC)
BEQ = 570000/(5 - 4.25) = 760000 units
So, 760000 units have to be sold to
break even

After Expansion Graph

In the graphs to the right, the y-axis is
the cost and the x-axis is the number of
outputs.
The red line shows the equation of the
total revenue from sales and the blue
line represents the equation for the total
costs. The purple line shows x = 760000
as it is the break-even quantity.

Sales Variable
Units Revenue Fixed Costs Costs Total Costs Profit
0 0 570000 0 570000 -570000
160000 800000 570000 680000 1250000 -450000
260000 1300000 570000 1105000 1675000 -375000
360000 1800000 570000 1530000 2100000 -300000
460000 2300000 570000 1955000 2525000 -225000
560000 2800000 570000 2380000 2950000 -150000
660000 3300000 570000 2805000 3375000 -75000
760000 3800000 570000 3230000 3800000 0
860000 4300000 570000 3655000 4225000 75000
960000 4800000 570000 4080000 4650000 150000
1060000 5300000 570000 4505000 5075000 225000
1160000 5800000 570000 4930000 5500000 300000
1260000 6300000 570000 5355000 5925000 375000

Workpoint 2 Part b)
Since Sales revenue = Price x Quantity
4500000 = 5 x Quantity
Quantity = 900000

Total cost = VC + FC
TC = 4.5(900000) + 350000 = 4400000

Profit = 4500000 - 4400000 = $100000

So they made a profit of a $100000, this

kind of profit is not attractive for many
clients and investors

Workpoint 3
a) Fixed costs = Rent + Salaries +
Admin + Utility Bills
FC = 600 + 1000 + 100 + 140 = 1840
b) BEQ = FC/(P-VC)
BEQ = 1840/(20-4) = 115
They need 115 kids (either repeating or not repeating)
per month to break even
c) Capacity = Quantity x Working days = (0.8 * 25) x
22 = 440
BEQ = 115
Margin of Safety = Capacity - BEQ = 325
d) & e)
Sales Variable
Units Revenue Fixed Costs Costs Total Costs Profit
0 0 1840 0 1840
50 1000 1840 200 2040 -1040
100 2000 1840 400 2240 -240
115 2300 1840 460 2300 0
150 3000 1840 600 2440 560
200 4000 1840 800 2640 1360
250 5000 1840 1000 2840 2160
300 6000 1840 1200 3040 2960
325 6500 1840 1300 3140 3360
350 7000 1840 1400 3240 3760
400 8000 1840 1600 3440 4560
440 8800 1840 1760 3600 5200

Margin of Safety Revenue = 8800 - 2300

= $6500
f) Strengths - Measure profit and losses at different
levels of production and sales.
Predict the effect of changes in sales prices.
Analyze the relationship between fixed and variable
costs.
Predict the effect of cost and efficiency changes on
profitability
Weaknesses - Assumes that sales prices are constant
at all levels of output.
Assumes production and sales are the same.
Break even charts may be time consuming to prepare.
It can only apply to a single product or single mix of
products