yoyoyo welcome back once again to the CPA strength show and who are you see
pedestrians I'm the longest I'm the longest I know MA I am the strongest
licensed CPA in the state of Florida that's who I am and what do you do over
here buddy I educate motivate and inspire people on a daily basis by
counting by teaching them accounting building blocks basic building blocks
building blocks building blocks now I will show you this little this little
app it's a big playlist I'm just going to Shh this right here right here I make
all your dreams come true it's the best playlist in the world guaranteed I
guarantee you makes all your dreams come true absolutely like nothing else it's
like a molecule like a neutron like have you seen one of those before you've
heard of them this is kind of what that is all righty anyways this is number 71
of my classic series classic series and we're going to break-even point an
example we've been talking about break-even point what is break-even
point it's when your revenue equals your cost and that's how we're going to start
out with it because if you can't remember anything else
if you can't quite remember the formula for it or just goodness we're just going
to start breaking important example the first question is we're going to find a
breaking point in sales units and the second question we have is we're going
to find the break-even point in sales units or just going to change the sales
price to 67 and in the first example the sales price is 60 so it's just more
there's more practice another practice more practice for us to do and that's
quite frankly that's how you're going to learn the break-even if you don't know
it you're going to do now you're going to do one one question one day and then
two weeks later you're not really going to remember it if you do two questions a
day every day for two weeks and mind you by the time by the time you're doing a
break-even question in that second week it's going
to take you like two seconds like you're just going to look at it and be like Oh
puh puh puh and and guess what when you get on your chest boop boop
anyway so engine a different things now I want to say what is the break-even
point it's when revenues right Rev equals costs and I want to start out
first with my algebraic equation and then we're going to do it with the
formula and then we're going to solve the formulas answer on how many units we
need to break-even I'm going to solve that with the algebraic equation anyways
revenue minus cost that's a break-even point right how much
money we have coming in equals how much money we have going out what do we have
what do we have coming in what's our revenue our revenues are $60 per unit so
it's going to be 60 times how many units we sell equals the variable our cost
equals our cost what's our cost our variable cost 35 per unit
thirty-five depending on how many units we sell plus fixed costs of 80,000 so
that so when we sell unit we had sixty dollars coming in per unit also when we
sell unit we have we have $35 per unit going out of our out of our bank and not
included in the variable cost not including our classes this is a fixed is
the fixed cost of 80,000 so we got variable cost and fixed costs that
comprise of our costs now what is this what is the formula well the formula is
the formula is fixed D - the formula it's fixed over fixed over contribution
margin what's contribution margin sales minus 3 or sales minus variable or left
the contribution margin because think about what what are we doing here were
we're we're cellular profit from selling a widget for $60 and the cost associated
with that item with that one item in particular that one item not that not
too straight cause not the fixed costs like like rent and a cable and a
internet bill not not the fixed ones so 35 dollars is coming out each time we
resell we got we got 60 dollars we've got 60 dollars coming in each time we
sell unit but we have 35 dollars going out so that means there's 25 dollars in
profit every single time there's 25 dollars in profit then the fixed costs
so that is called the contribution margin the sales minus the variable
costs so once they have the contribution
margin which in this case is $25 apiece then we can divide that into the fixed
cost because then we'll know how many units we have to sell to make to make up
for that fixed cause now if you're not if if if this is if this isn't making
sense to you and you don't understand the break-even cost you know play with
some numbers yourself and sit there for you know that's my thing slow down a
little bit think about what's going on try to see what the big picture work it
until you understand it don't worry that someone else can learn this in seemingly
20 minutes okay it might take you two days but guess what you're going to go
slow and once you learn it you learn it hey you know I want to start going a
little faster now all right I'm sorry of all this what fixed-fixed is 80 K right
eighty eighty thousand and what's the contribution margin the contribution
margin is sales minus variable sixty minus 35 right 60 minus 35
there's 25 so 80,000 divided by 25 hmm when I say 80,000 80,000 divided by 25 I
got 3,200 I got 3,200 units it will take to break even
I got 3,200 units that's my answer if you sold it if you sold at $60 per
unit the contribution margin is twenty five eighty thousand dollars for twenty
five eighty thousand dollars by twenty five dollars thirty two hundred units
would that work over here would would would thirty two hundred units satisfied
this equation and you're darn tootin I would 100% check this check the validity
of this all right so sixty dollars rounders sixty times
thirty two hundred units equals 192 thousand one hundred ninety two thousand
Oh so what these two equal 192 K and this
is when 3200 years in their doors checking ability at 192 k $60 730 200
now that's our revenue now if we sold 3200 units with that equal 192 thousand
our cost let's find out $35 per unit those clear $35 per unit
times 32 hundred times 3200 equals one hundred and twelve thousand plus 80
thousand plus 80 thousand one hundred ninety two thousand so yes that checks
out that checks out Bing Bing Bing now I'm
running out of kind around that time I'm sweaty AF let me just run through this
real fab it's going to run through this real fast so the answer to number one is
3200 okay number 2 we're going to change the sales price we're going to change
we're going to change the sales price from 60 to 67 all right so revenues go
to equal costs right red equals costs now each one our revenue is going to be
67 now times how many units we sell to break-even is going to equal well we got
the same we've got the same cost 35 variable in eighty thousand six so it's
going to be our costs are going to be thirty thirty-five dollars times every
time we sell one of these plus eighty thousand same same facts as it as before
hmm I was looking the lighting sorry okay let's go on to what are we going to
go on to now I can't think of them swimming ah it is the middle of August
2017 hopefully I can look back at this another ten years or something you know
in the year you know 2027 or 2025 and have a nice place with lots of air
conditioning and say you know what you just grind it boss and yeah man I mean
you're going to look at that you're going to look back it hopefully I'll
look back at this and be like man I loved that time I don't just grinding
and grinding sir glaze right now I'm hating it right now if I'm gonna die
woo all right where where was I um all right so that's the I was reading
equation now we're just going to solve for how do we solve for breakeven fixed
over contribution margin what's our fixed 80,000 80,000 is fixed
over what's our contribution margin 67 now minus 35 is 32 I hope it's 32 32 I
hope it is I don't know I'm sexy this is seven more and we just added 7c I know
it's right I don't know it's right players all right let's go through a
thousand divided by 32 equals 2500 2500 is what you would need to sell to break
even would that make sense because would that
make sense if you raise the price seven dollars per unit so you're making more
per unit you would have to sell less to cover your costs yes that would make
sense now let's take this 2500 and put it in here and see if it if it works
out let's see if we sold 2525 hundred of these units come on come on
sixty seven times twenty-five hundred that's one hundred sixty seven thousand
five hundred one six seven five hundred that's how much revenue you'd have it's
on twenty five hundred units now well your cost be 35 $35 times twenty five
hundred equals eighty seven thousand five hundred dollars plus eighty
thousand dollars plus eighty thousand dollars equals one hundred and sixty
seven thousand five hundred one six seven five hundred oh my god I'm just I
didn't want I was a hot to heat anymore I want to talk about staying positive
that's what I really want to talk about and I was listening to some Tony Robbins
before I started what I was doing this board here it says listen I wrote I took
some notes whatever you look for is what you get think about that all right I
wrote that down I mean whatever you whatever you look for is what you get
also most people overestimate what can be done in a year and they underestimate
what can be done in 10 years so just work your butt off and stay positive and
I'll see you in the next one alright like comment share subscribe don't be
stingy with all those accounting stuff actually if you share it with someone
who's taken accounting don't be don't you know I'm not thinking with this
accounting knowledge so you don't be stingy either and I'll see in the next
one I'll see you for 72 deuces