Appendix A

Break-even Analysis

The break-even point (BEP) is the point at which total revenue equals total cost. Before break-even, the company is losing money. After break-even, profit is being realized. Therefore, it is critical to project the ­volume of sales needed to reach break-even and the point in time when this ­volume will be achieved.

As shown in Figure A.1, calculation of the BEP in units (#) is based on the simple formula: BEP# = FC/P-VC,

51988.jpg

Figure A.1 Graphic depiction of break-even analysis

where,

FC

=

the fixed costs of the operation

P

=

the unit price of the product to be sold

VC

=

the variable cost (cost associated with ...

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