Break Even Analysis Assignment 1 PDF

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A small portion of a big final project...

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Student or Team Name:

Daily Grinds

Break-EvenAnalysis Break-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and planning for the coming period. There are a couple of formulas that will be helpful for this assignment:

1. An important distinction is made in the calculation between fixed and variable costs. Fixed costs do not change with the units sold (at least in the short term). Variable costs depend on the units sold in the period. Identify each of the following as a fixed (F) or variable (V) cost in the context of BizCafe. Item Cost Type Item Cost Type F F Advertising Equipment Coffee

V

Payroll

F

Cups

V

Rent

F

2. Calculate the break-even units if fixed costs are $12,000 and you are selling coffee for $3.60 at a cost of $0.40 per cup. Break-Even Units= Fixed Costs/(Price-Unit Variable Cost Break-Even Units= 12000/(3.60-0.40) Break-Even Units= $3750 Therefore, the break-even units is $3750.

3. Using the same fixed and variable costs as in question 2, what is the new break-even point if the price is lowered to $2.90? New Break-Even Point= Fixed Costs/ (Price-Unit Variable Cost) New Break-Even Point=12000/(2.90-0.40) New Break-Even Point= $4800 Therefore, the new break-even point is $4800

4. Using the fixed and variable costs from question 2, what is the break-even price if you project that you will sell 3,000 cups of coffee? Break-Even Price= Variable Cost+ Fixed Costs/Projected Units Break-Even Price= 0.40+12000/3000 Break-Even Price= $4.40/cup Therefore, the break-even price with a projected sales of 3000 cups of coffee is $4.40/cup.

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5. How can knowing the break-even units help you with other decisions? Before profit can be gained, the break-even point determines the total amount of revenue the company wants. The break-even measurement also allows the organization to recognize unsustainable fixed costs when analyzed closely. After reaching the break- even point any additional sales is the company profit. This tells us how many units that are needed to sell in order to cover all costs. Furthermore, it helps us understand the company’s financial performance. Knowing the break-even point gives us insight when we are able to find more equipment and enhance our advertising. Overall, knowing the break-even point is beneficial towards the company’s financial success....