Project Breakeven

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HBS Toolkit LICENSE AGREEMENT

Contents

Introduction: This sheet

Analysis: Entry screen for fixed and variable costs, pricing/contribution,

and volume information

Chart: Displays break-even point, variable costs, fixed costs,

and contribution in dollars and units

Table: Output data which generates break-even chart

Overview

Managers often want to know the production level where profits earned from a product cover

the cost of resources used to create it. Break-even analysis is how we determine this level.

The point at which total sales revenues covers the costs of committed resources is called the

break-even point. In addition to knowing the break-even point, managers may also want to

know the point at which sales volume reaches a pre-set target-profit level.

This tool helps you perform both of these calculations. The first is break-even analysis

where your goal is to determine how many units you must sell to recover all of your fixed

costs. The second is target-profit analysis where your goal is to determine how many

units you must sell to reach a pre-defined profit level. The difference between the two is

that at break-even your target-profit is zero, whereas when you specify a target-profit

that is greater than zero, you are setting your goal above the break-even point.

Directions

You may want to print these directions as a reference guide for this tool.

These directions provide a general introduction to the contents of each worksheet

in the tool. For more detailed directions place your mouse above the red celltips

located throughout the tool. See this example -->

Analysis: The analysis page is your primary input sheet. Here you will

tell the tool what type of analysis you want to perform, input

the data required to perform calculations, and view some of

the output of those calculations.

Chart: The chart sheet is one of the two report sheets in this tool.

Here you can visually measure your break-even or target-profit

level along with total fixed and variable costs. If you chose to

calculate the number of months before you reach break-even

or target-profit those numbers will be reported here.

Table: The table sheet is the second output report and contains the

data used to generate the break-even/target-profit chart. This

includes ten data points on either side of the break-even/target-profit

point.

Important Note: This tool is based on a Microsoft Excel worksheet. Any changes

you make to this file are permanent once you save the file. To

re-use this tool as a template for break-even calculations, always

open a new copy of the tool and save your results with a

different file name.

To start using the tool, remove the sample data from the tool using the Show/Hide

Sample Data option under the HBS Menu

Break-Even Analysis INTRODUCTION

Break-Even Analysis INTRODUCTION

Sample Problem

A company wants to begin selling a new pair of hand-held pliers in the upcoming fiscal

year. They want to know how many hand-held pliers they will have to sell in order to

break-even on this investment in materials and equipment. They received the following

data from the chief financial officer:

Fixed costs

Metal molding machine: $100,000

Plastic grip molder: $25,000

Sander: $5,000

Variable costs (per unit)

Packaging material: $1.00

Raw material $1.00

Grip material: $0.50

Shipping $0.50

The marketing department estimates that they can sell their new pliers for

$15.00 per unit. They further project that they will average 1200 units

per month.

The goal is that they will break-even and start to earn a profit within

the first year. His target-profit level for the end of the first fiscal year is

$100,000.

Note About Using Internet Explorer

The default setting in Internet Explorer is to open these tools in the Explorer application

insteadof Excel. We recommend against this and provide directions in the Help section of

the HBSToolkit web site to change this default behavior.

HBS Menu

Show/Hide Sample Data: Displays or removes sample entries

Show Calculator: Launches Windows calculator

Show/Hide Celltips: Toggles in/out red Celltips in documented cells

Print Sheet with Celltips: Prints Celltip documentation on current sheet

Set Zoom: Provides quick access to 80%, 100%, and 125% zoom levels

Visit Web Links: Links to HBS Toolkit website, Toolkit Glossary, and Toolkit

Feedback, as well as HBS and HBS Publishing web sites

About HBS Toolkit: Launches the about box for the HBS Toolkit

Jon B. DeFriese MBA `00 and Chad Ellis, MBA `98 developed this software under the

supervisionof Professor Steven Wheelwright as the basis for class discussion rather than

to illustrate eitherthe effective or ineffective handling of an administrative situation.


Solve for: Product Name:

$0.00

Fixed Costs Variable Costs per Unit

Item 1 $100,000.00 Item 1 $1.00

Item 2 $25,000.00 Item 2 $1.00

Item 3 $5,000.00 Item 3 $0.50

Item 4 Item 4 $0.50

Item 5 Item 5

Item 6 Item 6

Item 7 Item 7

Item 8 Item 8

Fixed Costs: $130,000.00 Var. Costs/Unit: $3.00

Pricing and Contribution Volume

Unit Price: $15.00 Break-Even Volume: 10,833

Unit Contribution Margin: $12.00 Expected Sales Per Month: 1,200

Notes:


Break-Even Analysis ANALYSIS

Break-Even Point

Target Profit

Units Dollars

Sales per month expressed in:

Units Required for Break-Even:

Dollar Sales Required for Break-Even:

Variable Costs Per Unit:

Total Variable Costs:

Total Fixed Costs:

Months to Break-Even:

$3.00

10,833

$162,500.00

9.0

$130,000.00

$32,499.00


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 2167 4333 6500 8666 10833 13000 15166 17333 19499 21666

Dolla

rs

Number of Units

Total Fixed Costs Total Variable Costs Total Sales Revenues

Break-Even Analysis BREAK-EVEN

CHART


$194,994

$211,244

$227,493

$243,743

$38,999

$42,249

$45,499

$48,749

$25,999

$29,249

$32,499

$35,749

$129,996

$146,246

$162,495

$178,745

$64,998

$81,248

$97,497

$113,747

$0

$16,250

$32,499

$48,749

$13,000

$16,250

$19,499

$22,749

$0

$3,250

$6,500

$9,750

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

$130,000

13000

14083

15166

16250

8666

9750

10833

11916

4333

5417

6500

7583

0

1083

2167

3250

Number of Units Total Fixed Costs Total Variable Costs Total Sales Revenues

21666

$130,000

$130,000

$130,000

$130,000

$130,000 $64,998

$259,992

$276,242

$292,491

$308,741

$324,990

$51,998

$55,248

$58,498

$61,748

17333

18416

19499

20583

Break-Even Analysis BREAK-EVEN

TABLE

Project Breakeven

Documents

Transcript of Project Breakeven