Break-Even Analysis
How to calculate %FE
%FE= fixed expenses/sales
How to calculate %VE
%VE= variable expenses/sales
Variable or Fixed Expense: rent
Fixed Expense
Variable or Fixed Expense: security
Fixed Expense
Variable or Fixed Expense: utilites
Fixed Expense
How to calculate Break-Even Point in time
BEP in sales/total sales X 12 = BEP in months
How to calculate Break Even Sales
Break Even Sales= Fixed Expenses/MIR
2nd step of Break-Even Analysis
Classify expenses as either variable or fixed expenses
How is break-even analysis compared?
year to year
3rd step of Break-Even Analysis
Determine Margin Income Ratio (MIR) per dollar of revenue earned
4th step of Break-Even Analysis
Determine the "Break-Even" point in terms of money and/or time
Variable or Fixed Expense: advertising
Fixed Expense
Variable or Fixed Expense: manager/owner's wages
Fixed Expense
How to calculate %GPM
GPM= sales - cost of goods sold %GPM= GPM/sales
1st step of Break-Even Analysis
Gather data from Income Statement such as sales, cost of goods, gross profit margin
How to calculate MIR
MIR= %GPM - %VE
MIR is also known as the what?
Operating Margin
Net Profit Equation
Sales - Cost of Goods = Gross Profit Margin - Variable Expenses - Fixed Expenses = Net Profit
Break-Even Analysis Definition
The point in terms of sales or time wherein NO PROFIT OR LOSS is realized
What does MIR measure?
The portion of revenue that is left over after paying for variable expenses that is available to pay for fixed expenses
Why is good MIR needed?
To cover fixed expenses and provide for profit
What is break-even analysis used to determine?
To determine how much in additional sales are necessary to cover a new expenditure or program. Determine how much in additional sales are necessary to reach a Net Profit Target
Variable or Fixed Expense: Computer support
Variable Expense
Variable or Fixed Expense: Rx packaging
Variable Expense
Variable or Fixed Expense: credit card fees
Variable Expense
Variable or Fixed Expense: delivery fees
Variable Expense
Variable or Fixed Expense: employee wages
Variable Expense
