Customizable Business Plan Graphs, Reports and Tools.

Break Even Analysis Fixed Costs: Variable Cost (per unit): Selling Price (per unit): Time Period: Calculate Clear
500 10 15 Monthly

Definitions
Break Even Analysis A calculation of the sales volume (in units) required to just cover costs. A lower sales volume would be unprofitable and a higher volume would be profitable. Break-even analysis focuses on the relationship between fixed cost, variable cost (or cost per unit), and selling price (or selling price per unit). Fixed Costs Cost that do not change when production or sales levels do change, such as rent, property tax, insurance, or interest expense. The fixed costs are summarized for a specific time period (generally one month). Variable Cost (Per Unit Cost) Variable costs are costs directly related to production units. Typical variable costs include direct labor and direct materials. The variable cost times the number of units sold will equal the Total Variable Cost. Total Variable costs plus Fixed costs make up the total cost of production. Selling Price (per unit price) The price that a unit is sold for. Sales Tax is not included the selling price and sales taxes paid is not included as a cost. The Selling Price times the number of units sold equals the Total Sales.

Break Even Point The sales volume (express as units sold) at which the company breaks even. Profits are $0 at the break even point. The break even point is calculated by the following formula: Break Even Point = Fixed Costs / (selling price-variable costs). Time Period

The fixed costs are summarized for a specific time period. The per unit variable cost is not dependant on a specific period of time. The per unit selling price is not dependant on a specific period of time. The Break Even Point is expressed a the number of units, over a specific time period, that must be sold to obtain a Net Profit of $0. The time period the units must be sold is always the same as the time period of the fixed costs.

Typically the time period is Monthly, however it could be Yearly or even Hourly. For example, a farmer seeking the break even on an annual corn crop would choose a yearly time period. The farmer would add up the fixed costs for the whole year and the break even sales volume would be expressed as a yearly sales volume. The text that is written in the time period field is copied to the title of the Break Even Graph and Break Even Report. If you leave the field blank then nothing will be copied.

Break Even Calculator Example

Assume the following: Fixed Costs: Monthly Rent Insurance ($600 per year $600/12 months = $50) Total Monthly Fixed Costs $100 $50 $150

Variable Cost: Materials Labor $3 $4

Total Variable Cost

$7

Selling Price: Break Even Point Calculation Break Even Point = Break Even Point = Break Even Point = Break Even Point =

$10

Fixed Costs / (selling price - variable costs) $150 / ($10-$7) $150 / $3 50

To break even the company must sell 50 units per month. If the Company just broke even, then its Profit and Loss Statement would look like the following: Monthly Profit and Loss Statement Sales Gross Sales Less Cost of Goods Sold Net Sales Expenses Rent Insurance Total Expense Net Profit $100 $50 $150 $0 ($10 per unit times 50 units) ($7 per unit times 50 units) $500 $350 $150

Break Even Analysis Calculation

After you click on the 'Calculate', the break even calculation is performed. If the calculation is successful, the four following four links will appear:

View the Break Even Analysis Graph View the Break Even Analysis Report Break Even Analysis Graph Options Break Even Analysis Report Options

If the break even calculator was unsuccessful, then an error message indicating why the calculation was not performed will be displayed.

Break Even Analysis Graph Options

To access the Break Even Graph Options click on 'Graph Options' (which is only visible after clicking on 'Calculate').

The Fixed Costs Line - You can choose to either include or not include the fixed cost line. This has no effect on the total costs or break even point. The Location of Line Titles - The graph has a key which associates a line color with each line. The key includes the following Total Revenue, Total Costs and possibly Fixed Costs. You should move the key to a position where there are no lines.

Downloading and viewing the Break Even Analysis Graph To view the graph click on 'View the Break Even Graph' (visible after clicking on 'Calculate'). To download the graph:

Click on 'View the Break Even Graph' (visible after clicking on 'Calculate'). Right click on the graph. Select Save Picture as... A save picture dialog will appear. Save the graph to a location where you can easily find it (i.e. your desktop). The 'Save as type' should be jpeg (*.jpg).

Note: The calculator generates a 'picture' of the graph.

Break Even Analysis Report Options

To access the Break Even Report Options click on 'Report Options' (visible after clicking on 'Calculate'). File Types

HTML (Hyperlink Text Markup Language) - For viewing online. Opens an html formatted internet page. Word Document - For downloading the file or for viewing online if you have a software program on your PC that will allow you to do so.

The file does not contain macros. Excel Spreadsheet - For downloading the file or for viewing online if you have a software program on your PC that will allow you to do so. The file does not contain macros.

Decimal Digits The number of digits that follows the decimal point (i.e. the cents). To include the cents use 2, otherwise use 0. Grid Lines The lines between the cells of the table and a double solid line that surround the table. The options are: None, Horizontal, Vertical or Both. Alternate Row Colors To alternate the colors of the rows. Generally alternating the row colors makes it easier to read across long rows. Format Controls the color of the title and the color of the tables boarders. Downloading and viewing the Break Even Analysis Report To view the report click on 'View Break Even Report' (visible after clicking on 'Calculate').

Other Calculators and Tools

Other Calculators and Tools are available at the following link: business plan online tools. If you are going to insert more than one report into a document (i.e. your business plan) make sure you select the same formatting options for each report.

How to Do a Breakeven Analysis

Breakeven analysis helps determine when your business revenues equal your costs
From Daniel Richards

See More About:

breakeven analysis startup costs

business planning financial analysis Ads Top b schools in indiaWLC College: Work & Study together UK Diploma,16 Super-Specialisationwww.wlcibusiness.in Entrepreneur Summit 2012Best Business Marketing Strategies For Startups. Register Now!www.entrepreneurindia.com Make Huge income at HomeSign Up to XForex And Learn How To Increase Your Monthly Income.www.xforex.com Entrepreneurs Ads

Business Plan Sample Business Plan Example Small Business Plan Business Plan Examples Break Even Analysis Ads Online MBA - FinanceOnline material backed by Textbooks Academic support. Enrol Now!www.utsglobal.edu.in Relocating Your Business?Fairfax County, Virginia is the gateway to the US market. See why.www.FairfaxCountyEDA.org If you can accurately forecast your costs and sales, conducting a breakeven analysis is a matter of simple math. A company has broken even when its total sales or revenues equal its total expenses. At the breakeven point, no profit has been made, nor have any losses been incurred. This calculation is critical for any business owner, because the breakeven point is the lower limit of profit when determining margins.

Defining Costs

There are several types of costs to consider when conducting a breakeven analysis, so here's a refresher on the most relevant.

Fixed costs: These are costs that are the same regardless of how many items you sell. All start-up costs, such as rent, insurance and computers, are considered fixed costs since you have to make these outlays before you sell your first item. Variable costs: These are recurring costs that you absorb with each unit you sell. For example, if you were operating a greeting card store where you had to buy greeting cards from a stationary company for $1 each, then that dollar represents a variable cost. As your business and sales grow, you can begin appropriating labor and other items as variable costs if it makes sense for your industry.

Setting a Price

This is critical to your breakeven analysis; you can't calculate likely revenues if you don't know what the unit price will be. Unit price refers to the amount you plan to charge customers to buy a single unit of your product.

Psychology of Pricing: Pricing can involve a complicated decision-making process on the part of the consumer, and there is plenty of research on the marketing and psychology of how consumers perceive price. Take the time to review articles on pricing strategy and thepsychology of pricing before choosing how to price your product or service. Pricing Methods: There are several different schools of thought on how to treat price when conducting a breakeven analysis. It is a mix of quantitative and qualitative factors. If you've created a brand new, unique product, you should be able to charge a premium price, but if you're entering a competitive industry, you'll have to keep the price in line with the going rate or perhaps even offer a discount to get customers to switch to your company. One common strategy is "cost-based pricing", which calls for figuring out how much it will cost to produce one unit of an item and setting the price to that amount plus a predetermined profit margin. This approach is frowned upon since it allows competitors who can make the product for less than you to easily undercut you on price. Another method, referred to by David G. Bakken of Harris Interactive as "price-based costing"encourages business owners to "start with the price that consumers are willing to pay (when they have competitive alternatives) and whittle down costs to meet that price." That way

if you encounter new competition, you can lower your price and still turn a profit. There are always different pricing methods that can be used. The formula: Don't worry, it's fairly simple. To conduct your breakeven analysis, take your fixed costs, divided by your price, minus your variable costs. As an equation, this is defined as: Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs) This calculation will let you know how many units of a product you'll need to sell to break even. Once you've reached that point, you've recovered all costs associated with producing your product (both variable and fixed).

Above the breakeven point, every additional unit sold increases profit by the amount of the unit contribution margin, which is defined as the amount each unit contributes to covering fixed costs and increasing profits. As an equation, this is defined as: Unit Contribution Margin = Sales Price - Variable Costs Recording this information in a spreadsheet will allow you to easily make adjustments as costs change over time, as well as play with different price options and easily calculate the resulting breakeven point. You could use a program such as Excel's Goal Seek, if you wanted to give yourself a goal of a certain profit, say $1 million, and then work backwards to see how many units you would need to sell to hit that number. (This online tutorial will show you how to use Goal Seek.)

Calculators

There are several online calculators to assist you with your breakeven analysis:

Case Western Reserve University offers a breakeven analysis calculator that includes a review of relevant microeconomic terms. This financial calculator allows you to chart your costs and profits appear in a graph. Inc.com offers a breakeven analysis calculator that requires a user to enter in total annual overhead and annual year-to-date sales and cost of sales, and lets the user delineate the period for the YTD calculations in terms of weeks.

Limitations

It is important to understand what the results of your breakeven analysis are telling you. If, for example, the calculation reports that you would break even when you sold your 500th unit, decide whether this seems feasible. If you don't think you can sell 500 units within a reasonable period of time (dictated by your financial situation, patience and personal expectations), then this may not be the right business for you to go into. If you think 500 units is possible but would take a while, try lowering your price and calculating and analyzing the new breakeven point.

Alternatively, take a look at your costs - both fixed and variable - and identify areas where you might be able to make cuts.

Lastly, understand that breakeven analysis is not a predictor of demand, so if you go into market with the wrong product or the wrong price, it may be tough to ever hit the breakeven point.