(a) What is the difference between the (ordinary) break-even point and the cash break-even point...


Pharmaceutical Bhd manufactures medical products which are sold to pharmacies and clinics. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $ 110. Pharmaceutical Bhd incurs fixed costs of $630,000 per year. Required to answer the followings:

i) What is the break-even point in units for the company?

ii) What is the sales volume the firm must achieve to reach the break-even point?

iii) What would be the firm's profit or loss at the following units of production sold: 12,000 units? 15,000 units? & 20,000 units?

iv) Find the degree of operating leverage for the production and sales levels given in part (iii) above.

Break-Even Analysis:

Break-even analysis looks at an organization's total costs (variable and fixed), compares them to sales, and finds the point in sales (both units and dollars) where profit equals zero. Simpler terms, it's the amount of sales you'd have to make before you'd be able to turn a profit.

Answer and Explanation: 1

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1. Break-even point = Fixed Costs / Contribution Margin per unit
Contribution Margin per unit = Sales Price per unit - Variable Cost per unit
630,000 /...

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Break-Even Analysis: Definition & Example


Chapter 4 / Lesson 3

A break-even analysis utilizes a price calculation formula to determine how much product a business must sell and at what price in order to make a profit. Learn how to apply this analysis through examples with fixed and variable costs, and discover the importance of a margin of safety.

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