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THE BREAK – EVEN POINT ANALYSIS

Objectives:
1. To provide knowledge on the relation of the break-even point quantity
and revenue to the total revenue and total cost functions.
2. To give a clear analysis on the changes of the selling price, variable
cost and fixed cost if the break-even quantity increases or decreases.
3. To give a clear analysis on the changes of the variable cost, fixed cost
and break-even quantity and revenue if there is an increase or
decrease in the selling price.
4. To provide knowledge in finding the maximum profit on a given non-
linear profit function.
5. To illustrate the process of finding the break-even quantity and
revenue, given a non-linear revenue and profit function.
6. To provide knowledge in finding the minimum cost, given a cost non-
linear function.

BREAK – EVEN POINT

The common point between the total revenue and the total cost is called
the break-even point. At this point the total revenue equals the total cost. The
company has no profit but has no loss.

TOTAL REVENUE, TOTAL COST, AND PROFIT FUNCTIONS

The total revenue (TR) is obtained by finding the product of the selling
price per unit by the number of units sold. Total cost (TC) is obtained by finding
the sum of fixed cost (FC) and variable cost (VC). Fixed cost is constant while
the variable cost represents the cost of production per unit. The following
formulas should be remembered.

TR = selling price times the number of units


TC = FC + VC
Profit = TR –TC
At Break-even point TR = TC or TR – TC = 0

BREAK –EVEN ANALYSIS : LINEAR FUNCTION

Problem:
A firm sells its products at P6 per unit. The product has a variable
cost of P3 per unit and the company’s fixed cost is P9,000. Determine each of
the following:
1. TR, TC, and profit functions
2. Sales volume when profit is P9,000.
3. Profit when sales are 600 units
4. Break-even revenue and quantity.

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