Break even point

1. NADEEM UDDIN
ASSOCIATE PROFESSOR
OF STATISTICS
https://www.slideshare.net/NadeemUddin17
https://nadeemstats.wordpress.com/listofbooks/

2. Break Even Point:
When total revenue equal to total cost that is
R(x) = C(x)
Solve the above equation for x where x is the break even level of
output,Which shows there is no profit, no loss.

3. Linear Cost function:
C(x) = Total variable cost + Total fixed cost
Linear Revenue function:
R(x) = Total revenue = ( price )( quantity sold )
Linear Profit function:
P(x) = Profit = Total revenue – Total cost

4. Example
A company produce calculator and estimate that variable cost
per unit including materials, labour and marketing cost is
Rs.225, where the fixed cost is Rs.25,00000 the company
estimate that the selling price will be Rs.350 per calculator.
Determine the number of calculator which must be sold in order
for the firm to break even.
Solution:
R(x) = 350𝑋
C(x) = 225 𝑋 + 2500000

5. Apply Break even condition
R(x) = C(x)
350𝑋 = 225 𝑋 + 2500000
350𝑋 - 225 𝑋 = 2500000
125 𝑋 = 2500000
𝑋 =
2500000
125
𝑋 = 20000 Calculators

6. Conclusion:
(a) The company must sell 20000 calculators in order to break even
(no profit no loss)
(b) If company sell more than 20000 calculators there will be profit.
(c) If company sell less than 20000 calculators there will be loss.
DO YOURSELF
A firm sell a product for Rs 450 per unit.Variable cost per unit is
Rs.330 and fixed cost is Rs.450000,how many units must be sold in
order to break even and make a profit.
(Answer: x = 3750 and for profit x > 3750 )