Profit

CHAPTER 2

The Formula

Now that we have got through the hardest chapter, we are going to look at a formula that will let you have a new and exciting look at your business. This formula will let you calculate your breakeven and your net profit, and allow you to see what happens if you change costs from a variable cost to a fixed cost or vice versa. It will also allow you to calculate your profit based upon any of these changes.

Breakeven	BE
Variable cost as a percent of revenue	V
Fixed costs in dollars	F
Sales or revenue	S
Profit	P

First let us calculate the breakeven for the day care center referred to in Chapter 1.

BE = F/1 − V

The key here is that you use fixed costs as a dollar amount and variable costs as a percentage of revenue ...