Question

Hi,

I am requesting your help. I don't understand how to use a break-even and list all costs considered in the break-even analysis and identify if the cost is variable, fixed or mixed. My course related is to ACG 2071 Managerial Accounting.

How do I break-even equation and calculations?

Here instructions:

Give an example from your own experience where you used a break-even analysis. If you have not used the break-even analysis personally, create a situation in which you could use the analysis. List all costs considered in the break-even analysis, and identify if the cost is variable, fixed or mixed. Be sure to include your break-even equation and calculations.

Thank you,

Michelle

Answer 1

Two major components of break even analysis are fixed costs and contribution. Fixed costs do not vary with the level of out put and contribution is the excess of revenue over variable costs.

Assume I run a small burger store. I sell 1000 burgers per month , each costing $10 and variable cost is $6 per dollar. Fixed costs of running the store are $2000 [ including rent, utilities cost]

Contribution margin = Selling price - Variable cost = $10 - $6 = $4

Break even point = Fixed costs / Contribution margin = 2000 / 4 = 500 burgers