![]() You can see on the right-hand side that the Breakeven Volume is 1,020 units. Note: It may be easier to fine-tune precise input values in the interactive illustration using the arrow keys on your keyboard. Put the Revenue per Unit Sold slider ( r) at $75, Variable Cost per Unit Sold ( v) slider at $50, the Fixed Costs ( C) slider at $25,500 and set the actual output at 0. Using the interactive illustration below, you can enter each figure and see the output on the right. Given the $25 unit margin she’ll receive for each kite sold, she will cover her $25,500 in total fixed costs if she sells: If she sells the kite for $75, she’ll make a unit margin of $25. Therefore, the unit variable costs to make a single kite is: $50 ($20 in materials and $30 in labor). The variable costs include the materials used to make each kite - special string for $3, the fabric for the body for $6, wooden dowels for $7, a special plastic handle for $4 - and the labor required to assemble the kite, which amounted to one and a half hours for a worker earning $20 per hour. These costs are fixed because they will not change with the number of kites sold. ![]() These costs might cover the software needed to design the kite and be sure it is sufficiently aerodynamic, the fee paid to a graphic designer to design the look and feel of the kite, and the development of promotional materials used to advertise the kite. Assume she must incur a fixed cost of $25,500 to produce and sell a kite. To show how this works, let’s take the hypothetical example of a high-end kite maker. You’re typically solving for the Break-Even Volume (BEV). It’s a simple calculation to determine how many units must be sold at a given price to cover one’s fixed costs. Setting a price is, of course, complicated but breakeven analysis can help. ![]() Having the right price for a product or service can boost profit much faster than increasing volume. Managers typically use breakeven analysis to set a price to understand the economic impact of various price- and sales-volume scenario. Maybe even used the term before, or said: “At what point do we break even?” But because you may not entirely understand the math - and because understanding the formula can only deepen your understanding of the concept - here’s a closer look at how the concept works in reality. In a world of Excel spreadsheets and online tools, we take a lot of calculations for granted.
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