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Week 5

The document discusses break-even point, which is the level of output or sales at which total revenue equals total costs. It provides definitions and formulas for revenue, costs, profit, and break-even point. It includes an example problem calculating these metrics for a sofa company. The company's break-even point is 110 sofa chairs per month, and its break-even sales are ₱1,155,000. The document also includes another example calculating break-even point for a coffee shop. The coffee shop's break-even point is 1,000 cups of coffee per month, and its break-even sales are ₱50,000.

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Jeth Irah Costan
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98 views

Week 5

The document discusses break-even point, which is the level of output or sales at which total revenue equals total costs. It provides definitions and formulas for revenue, costs, profit, and break-even point. It includes an example problem calculating these metrics for a sofa company. The company's break-even point is 110 sofa chairs per month, and its break-even sales are ₱1,155,000. The document also includes another example calculating break-even point for a coffee shop. The coffee shop's break-even point is 1,000 cups of coffee per month, and its break-even sales are ₱50,000.

Uploaded by

Jeth Irah Costan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Break-Even Point

In this lesson, the students will be able to:

1. Differentiate break-even
2. Illustrate how to determine break-even point and sales

Break-Even Point
Break-even point = is the point at which neither profit or loss is made. The profit at the break-even is zero.
So, R(x) = C(x)
= is also an indicator to figure out if a certain business is viable or not
= it determines the needed volume of products that must be sold to attain a balance
between cos and revenue
Break-even Sales = refers to the amount of product that must be reached to attain a balance between cost
and revenue
Break-even Sales = Selling Price x Break-even Point
Cost = expenses for the production of product
Total Cost = Viable Cost + Fixed Cost
C(x) = Vx + F
Viable Cost = expenses of producing one unit of product
Fixed Cost = expenses for rent, utilities, wages of employees, etc. that remain the same no matter
how much product is manufactured or sold
Revenue = money received for the sale of goods or payments for the services rendered
Revenue = price per unit x number of units
R(x) = px
Profit = it is the money earned after the costs of producing and selling products or services
Profit = Revenue – Cost
P(x) = R(x) – C(x)

According to the diagram, P shows


the Break-even point where the income is
equal to the total cost, and the profit is 0.

Real Life Scenario

The ABCD Sofa Company produces sofa chairs. The fixed monthly cost of production is ₱470,000 and the
variable cost per sofa is ₱6,200. The sofa chair sells for ₱10,500 per piece. For a monthly volume of 140 sofa chairs,
determine the total cost, total revenue and total profit. What are the break-even point and break-even sales of the
company?

SOLUTION:
Given: Fixed Cost (F) = ₱470,000
Variable Cost (Vx) = ₱6,200
Number of sofa chairs (x) = 140
Price (p) = ₱10,500
Required: Total Cost =?
Total Revenue =?
Total Profit =?
Break-even point =?
Break-even Sales =?
Solutions:
Solving for Total Cost:
Total Cost = Viable Cost + Fixed Cost
C(x) = Vx + F
= 6200x + 470 000
C(140) = 6200 (140) + 470 000
= 868 000 + 470 000
C(140) = ₱ 1,338,000.00

Solving for Total Revenue:


Revenue = price per unit x number of units
R(x) = px
= 10 500 x
R(140) = (10500) (140)
R(140) = ₱1,470,000.00

Solving for Total Profit:


Profit = Revenue – Cost
P(x) = R(x) – C(x)
= 1,470,000 – 1,338,000
P(x) = ₱132,000.00

OR

P(x) = R(x) – C(x)


= 10500x – (6200x + 470000)
= 10500x - 6200x – 470000
P(x) = 4300x – 470000
P(140) = (4300) (140) – 470000
= 602000 – 470000
P(140) = ₱132,000.00

Solving for the Number of sofa per month to break-even:


R(x) = C(x)
10500x = 6200x + 470000
10500x - 6200x = 470000
4300x = 470000 divide both sides by 4300
x = 109.30 ≈ 110 sofa chairs

OR

P(x) = 0
4300x – 470000 = 0
4300x = 470000 divide both sides by 4300
x = 109.30 ≈ 110 sofa chairs

Solving for Break-even Sales:


Break-even Sales = Selling Price x Break-even Point
= 10500 x 110
Break-even Sales = ₱1,155,000.00
Example :
Jaycris is planning to run a coffee shop where he plans to sell each cup of coffee at ₱50. He assumed that the
fixed cost he needs to pay on a monthly basis amounts to ₱40000 which includes all his expenses like the amount he
needs to pay for the rent, wages for his employees, his basic expenses (electricity bill, water bill, phone bill and
internet bill) and etc. So even if Jaycris has no sales, he is still obliged to pay this amount. If a cup of coffee cost
Jaycris ₱10 for the bulk of grind coffee beans, purified water and coffee filter and the monthly volume is 1500 cups,
solve for cost, revenue, profit, break-even point and break-even sales.

SOLUTION:
Given: Fixed Cost (F) = ₱40,000
Variable Cost (Vx) = ₱10
Number of cups (x) = 1,500
Price (p) = ₱50

Required: Total Cost =?


Total Revenue =?
Total Profit =?
Break-even point =?
Break-even Sales =?
Solutions:
Solving for Cost:
Total Cost = Viable Cost + Fixed Cost
C(x) = Vx + F
C(x) = 10x + 40000
C(140) = 10 (1500) + 40 000
= 15000 + 40 000
C(140) = ₱ 55,000.00

Solving for Revenue:


Revenue = price per unit x number of units
R(x) = px
R(x) = 50x
R(140) = (50) (1500)
R(140) = ₱75,000.00

Solving for Profit:


Profit = Revenue – Cost
P(x) = R(x) – C(x)
= 75000 – 55000
P(x) = ₱20,000.00

Solving for Break-even point:


R(x) = C(x)
50x = 10x + 40000
50x – 10x = 40000
40x = 40000 divide both sides by 40
x = 1000 cups of coffee

Solving for Break-even Sales:


Break-even Sales = Selling Price x Break-even Point
= 50 x 1000
Break-even Sales = ₱50,000.00
ACTIVITY SHEET IN BUSINESS MATHEMATICS (WEEK 5)
QUARTER 3, S.Y. 2020-2021
8
Name: ___________________________________ Gr Lvl/Strand/Section: ___________________Date: ___________

A. Solve the problem. Show complete solutions and encircle the final answer. (15 points)

1. Suppose a firm manufactures hand towels and sells them for ₱75 each. If the cost incurred in the production and
sale of the hand towels are ₱200,000 plus ₱25 for each hand towel produced and sold. For a monthly volume of
5000 hand towels, determine/solve for the following:
a. Revenue
b. Cost
c. Profit
d. Break-even point / the number of towels per month to break-even
e. Break-even Sales

_________________________________
PARENT’S SIGNATURE OVER PRINTED NAME
.

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