Scribd
Upload
16 views

Notes - Break Even Analysis

Uploaded by

fhavitheresecaingin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
16 views

Notes - Break Even Analysis

Uploaded by

fhavitheresecaingin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

BREAK-EVEN ANALYSIS When two alternatives are to be compared, the break-even point is the

Introduction: intersection of the total cost line for each alternative on the break-even chart.
In engineering economy, many situations are encountered where the cost of two
or more alternatives may be affected by a common variable. Break-even point is
the value of the variable for which the costs for the alternatives will be equal.

C = f (x) and C = f (x)


1 1 2 2
where:
C1 = certain specified total cost applicable to Alternative 1
C2 = certain specified total cost applicable to Alternative 2
x = a common independent variable affecting Alternative 1 and Alternative 2

The break-even point is where C1 and C2 are equal,


f1(x) = f2(x)
Which may be solved for x, the break-even point.

BREAK-EVEN CHART CAlternative 1 = CAlternative 2


Break-even chart is a graphical representation of break-even analysis. The break-
even point is the quantity of production at which the income is equal to total cost.
It is the intersection of the income line and the total cost line on the break-even
chart. Sample Problem:
Two machines are being considered for the production of a particular part for
which there is a long term demand. Machine A costs ₱100,000 and is expected to
last for 5 years and have a total a ₱20,000 salvage value. Machine B costs ₱150,000
and is expected to last 10 years and have zero salvage value. Machine A can
produce a part in 20 seconds; Machine B requires only 12 seconds per part. The
out-of-pocket hourly cost of operation is ₱50 for A and ₱40 for B. Monthly
maintenance costs are ₱300 for A and ₱400 for B.

If interest on invested capital is 20%, determine the number of parts per year at
which the machines are equally economical. If the expected number of parts per
year is greater that this break-even quantity, which machine would be favored?

INCOME = COST
Sample Problem:
The cost of producing a small transistor radio set consists of ₱30 for labor and ₱40
for materials. The fixed charges in operating the plant are ₱150,000 per month. The
variable cost is ₱2 per set. The radio set can be sold for ₱100 each. Determine how
many sets can be produced per month to break even.

You might also like