Aero Performance Products Inc (fka AERP)

[Vasco da Gama]

FYI - Break-even (Formulas)


In the linear Cost-Volume-Profit Analysis model, the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:

TR =TC
P*X = TFC + V*X
P*X-V*X = TFC
P-V)*X=TFC

X=TFC/(P-V)

where:

TFC is Total Fixed Costs,
P is Unit Sale Price, and
V is Unit Variable Cost.

The Break-Even Point can alternatively be computed as the point where Contribution equals Fixed Costs.

The quantity (P- V) is of interest in its own right, and is called the Unit Contribution Margin (C): it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. Thus the break-even point can be more simply computed as the point where Total Contribution = Total Fixed Costs:

Total Contribution = Total Fixed Costs
Unit Contribution*Number of Units = Total Fixed Costs
Number of Units = Total Fixed Costs/Unit Contribution


In currency units (sales proceeds) to reach break-even, one can use the above calculation and multiply by Price, or equivalently use the Contribution Margin Ratio (Unit Contribution Margin over Price) to compute it as:

Break-even Point (in Sales)} = Fixed Costs/(C/P).


R=C Where R is revenue generated C is cost incurred i.e. Fixed costs + Variable Costs or Q X P(Price per unit)=FC + Q X VC(Price per unit) Q X P - Q X VC=FC Q (P-VC)=FC or Q=FC/P-VC=Break Even Point