Now, in life, do we really want to break even?
As I said, is breaking even going to get you friends, dates, and fun weekends?
I don't think so.
Let's do the same example, but now I want to make a profit of 20,000 bucks.
If I want to make a profit of $20,000, then working through the formula, sales price,
that's sales price times x, total revenue equals total costs.
Or total revenue equals, yeah, total cost.
So that's break even.
But now, total revenue equals total cost plus profit.
So this plus profit.
Or, in the numerator top, I'm going to add plus profit, or minus loss.
Why do I say minus loss?
Because they have asked questions, how much do you have to sell to only lose $20,000?
So it's plus profit or minus loss in the numerator.
Back this way, same thing.
Fixed plus profit or minus loss.
That's in the top, in the numerator.
Neeew-merator.
Let's go back to my example.
I've got 60 plus 20.
Now, that's 80 over eight.
Now, instead of 7,500, I got to sell 10,000 units.
Ah, interesting.
10,000 units, that would be 10,000 at 20 bucks.
That would give me 200,000. 10,000 is 120, gives me 80.
Fixed cost of 60 gives me a profit of 20.
There we go, so it works.
Using this formula, what do I end up with?
I end up with 60 plus 20 over 40 percent, which is, again, eight over 20, is going to
give me, 40 percent of something is 80.
How about 40 percent of 200?
Four times two is 80, equals eighty, boom.
There's 200, there it goes.
So remember that that's your formula.
In the numerator plus profit or minus loss.
That's called breakeven in units.
That's called breakeven in sales dollars.
That's an important concept.
Let's look at Cost Volume Profit.
Read it: �Cost Volume Profit, CVP analysis, provides management with profitability estimates
at all levels of production in the relevant range.� Again, relevant range.
In making decisions about new products or services, companies often rely on Cost Volume
Profit Analysis.
Generally, we're looking at a couple of applications, determining sales to break even, a profit,
or sales to achieve return on sales, as well.
There's your formula, breakeven in units, boom.
Breakeven in dollars, and then I gave you an example, kind of like what we just went
through.
You can see how it kind of works pretty straightforward.
It talks about desired profit.
Again, if you want to make a profit, how to add that in, as well.
There's also something called Margin of Safety.
Margin of Safety is your total sales minus breakeven sales equals Margin of Safety.
You've got total sales minus breakeven, the extra's your cushion, or your market Margin
of Safety.
So that is, again, the axis of sales volume over breakeven point, that is your cushion
or your margin of safety.
That's what we're dealing with when we talk about Breakeven Analysis.
You've got to remember the formulas.
Again, breakeven is what?
Fixed costs over contribution margin per unit.
If you want a profit, fixed plus profit over contribution.
If you want a loss, not that we want one, but, fixed minus loss over contribution margin.
Same thing with breakeven in dollars.
That's going to be dollars over non-dollars.
What's non-dollars?
A CM ratio.
Remember, the top is called the what?
Numerator.
And the d-d-d-down is the denominator.
All right, let's try some questions on this.