<p>Revenue = Units Sold * Unit Price</p><p>Total Costs = Variable Costs + Fixed Costs</p><p>Fixed Costs are not dependent upon units sold. The fixed costs will be a “flat fee”.</p><p>Variable Costs will be the Cost required to produce A UNIT multiplied by the number of units produced/sold. </p><p>Profit = Revenue – Costs</p><p>The Break Even Point can be defined in two ways:</p><p>1) The point at which our Revenue equals our Costs 2) The point at which the Profit is zero. </p><p>To find the break – even point, we can use our profit equation and solve for Profit = 0.</p><p>Or, we can graph both our Cost, and revenue equations, and see where they intersect. </p><p>Example Your neighbor lets you sell lemonade from his yard for $25 Per Month. You sell the lemonade for $1.00 per serving. The lemons ($0.30), water ($0.15), and paper cups ($0.05) cost $0.50 per serving.</p><p>Fixed Cost 25 Variable Cost 0.50 Selling Price 1.00 Time Period Monthly</p><p>1. A local livestock producer utilizes compost waste to develop an organic fertilizer product. The fertilizer is prepared for retail sale in 50 pound bags. The retail sales price is $5.00 per bag. The average variable cost per bag is $2.80 and average annual fixed costs are $60,000. What is the break-even sales figure?</p><p>2: Sue’s Day Care</p><p>Seeing a need for childcare in her community, Sue decided to launch her own daycare service. Her service needed to be affordable, so she decided to watch each child for $12 a day. After doing her homework, Sue came up with the following financial information:</p><p>Selling Price (per child per day) – $12.00</p><p>Fixed Expenses (per month) </p><p>Insurance - 400</p><p>Rent - 200</p><p>Total Fixed Expenses - 600</p><p>Costs of goods sold - $4.00 per unit</p><p>Meals Snacks - 2 @ $1.50 (breakfast & lunch) 2 @ $0.50</p><p>The month of June has 20 workdays, Monday through Friday for four weeks. How many children will Sue need to take care of just to break-even in her new business? 3: Joe’s T-Shirts</p><p>Fill in as much information in this table as you can from the information below the table, then use it to calculate the break-even.</p><p>← For the month of June, he sold t-shirts at $10 each. </p><p>← He paid $5 for each t-shirt and $.80 per shirt for personalizing art materials. </p><p>← He pays $25 a month on his loan for a t-shirt printing machine. </p><p>← His monthly phone bill is $35. </p><p>← 4. You own a motel with a hundred rooms. Fixed daily cost is $1000 (includes mortgage, staff salaries, maintenance). Variable cost per room is $10 per room per day (includes extra utility cost, room cleanup, etc).</p><p>0 a. If you charge $50 per room, what is the breakeven point? (That is, how many rooms must be occupied for you to break even) 1 b. You have the option of subcontracting to improve room quality and the surroundings, but that would increase fixed costs to $1800, with no change to variable costs. You will, however, be able to charge $70 per room per day. What is the new break-even point? Part II Extend the analysis to a larger hotel like the Marriott or Hilton. What aspects of the analysis would change? Case A – Basic break-even point problem</p><p>In this simple problem your task is to work out the number of participants required to </p><p>Ensure the break-even point. </p><p>The data you need to make your calculation is as follows:</p><p>← Total Fixed Costs: $10,080 </p><p>← Variable Cost per Participant: $2.00 </p><p>← Ticket Price per Participant: $20 </p><p>Case B – Variation of the basic break-even point problem</p><p>This problem is much the same problem as in case A except that you are given the </p><p> number of participants and you must work out what is the minimum price that</p><p> spectators must be charged.</p><p>The data you need to make your calculation is as follows:</p><p>← Total Fixed Costs: $10,000 </p><p>← Variable Cost per Participant: $5.00 </p><p>← Number of Participants Required: 500 </p>