12 Breaking Even
Breaking even means that your total income is equal to your total expenses. It is important to know how much of your product you need to sell in order to break even. This will help you understand what steps to take to begin to make a profit.
There is a formula you can use to determine your break-even point:
Let’s say it costs you $0.75 to make one doughnut (the variable cost per unit), and you charge $1.65 for that doughnut (the selling price per unit). The fixed costs you have for the month are $2,345.12. You would set up the equation like this:
You would need to sell about 2,606 doughnuts in a month to break even.
This is fine if all you sell is doughnuts! But what if you sell more than one item? Let’s say you also sell cinnamon rolls which cost you $0.85 each to make, and you sell them for $1.80 each. What you need to know is, what is the ratio of cinnamon rolls you sell compared to the number of doughnuts you sell? Let’s say you sell three doughnuts for every cinnamon roll. Now you figure out what ratio of the fixed costs you assign to the doughnuts, and what to the cinnamon rolls. This works just like this:
3 doughnuts + 1 cinnamon roll = $2,345.12
4 products = $2,345.12
1 product =
3 doughnuts = 3 $586.28 = $1,758.84 (amount of fixed costs assigned to the doughnuts)
1 cinnamon roll = $596.28 (amount of fixed costs assigned to the cinnamon rolls)
So now for the doughnuts, we’ll use the same formula above:
And then the cinnamon rolls:
You would need to sell about 1,954 doughnuts, and 617 cinnamon rolls in a month to break even.
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Assignment
Purpose
To practice calculating the breaking even point of a business.
Outcomes
By completing this assignment, you will be able to…
- Understand what the breaking even point is.
- Calculate the breaking even point of given businesses.
Instructions
To complete this assignment…
- Read the problems carefully and find the correct answers.
- Be sure to show how you set up each problem.
Tips for Success
To help in the completion of this assignment, make sure to:
- Read each problem carefully and understand what it is asking.
- Include how you set up each problem in order to get credit.
- IMPORTANT: You will round your answers to the nearest ONE in this assignment.
Breaking Even Assignment
1) If it costs $0.68 to make a jumbo cookie, and you sell it for $1.25, and your monthly fixed costs are $3,210.34, how many cookies will you need to sell in the month to break even?
2) If it costs $0.74 to make a large muffin, and you sell it for $1.65, and your monthly fixed costs are $3,049.47, how many muffins will you need to sell in the month to break even?
3) If it costs $0.35 to make a cupcake, and you sell it for $0.90, and your monthly fixed costs are $2,593.48, how many cupcakes will you need to sell in the month to break even?
4) If it costs $0.86 to make a maple bar, and you sell it for $1.95, and your monthly fixed costs are $2,694.93, how many maple bars will you need to sell in the month to break even?
5) If it costs $2.45 to make a layer cake, and you sell it for $4.35, and your monthly fixed costs are $3,205.58, how many cakes will you need to sell in the month to break even?
6) If it costs $2.19 to make a blueberry pie, and you sell it for $4.95, and your monthly fixed costs are $2,907.57, how many pies will you need to sell in the month to break even?
7) If it costs $0.79 to make a croissant, and you sell it for $2.00, and your monthly fixed costs are $2,899.75, how many croissants will you need to sell in the month to break even?
8) If it costs $0.65 to make a doughnut, and you sell it for $1.75, and your monthly fixed costs are $3,047.27, how many doughnuts will you need to sell in the month to break even?
9) It costs you $0.59 to make a croissant, and you sell it for $1.75. It costs you $0.89 to make a large muffin, and you sell it for $2.25. Your monthly fixed costs are $3,126.42. You sell three croissants for every muffin. How many croissants, and how many muffins, will you need to sell in the month to break even?
10) It costs you $0.49 to make a jumbo cookie, and you sell it for $1.35. It costs you $0.73 to make a doughnut, and you sell it for $1.75. Your monthly fixed costs are $2,749.39. You sell three cookies for every two doughnuts. How many cookies, and how many doughnuts, will you need to sell in the month to break even?
11) It costs you $1.63 to make a pie, and you sell it for $3.95. It costs you $1.24 to make a cake, and you sell it for $2.25. Your monthly fixed costs are $3,219.38. You sell the same number of pies as cakes. How many pies, and how many cakes, will you need to sell in the month to break even?
12) It costs you $0.73 to make a frosted cinnamon roll, and you sell it for $1.45. It costs you $0.49 to make a cinnamon twist, and you sell it for $1.00. Your monthly fixed costs are $3,519.28. You sell two cinnamon rolls for every cinnamon twist. How many rolls, and how many twists, will you need to sell in the month to break even?
13) It costs you $1.67 to make a loaf of white bread, and you sell it for $3.15. It costs you $1.74 to make a loaf of sourdough bread, and you sell it for $3.50. It costs you $1.42 to make a loaf of whole grain bread, and you sell it for $3.35. Your monthly fixed costs are $2,983.58. For every loaf of white bread that you sell, you sell two loaves of sourdough bread, and three loaves of whole grain bread. How many of each kind of bread will you need to sell in the month to break even?