Break Even And Profit Volume Cost Analysis
Break Even and Profit Volume Cost Analysis
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Prepared By : |
[Your Name] |
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Department : |
[Your Department] |
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Company : |
[Your Company Name] |
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Company Address: |
[Your Company Address] |
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Company Social Media: |
[Your Company Social Media] |
I. Introduction
In this Break Even And Profit Volume Cost Analysis, we aim to analyze the financial viability of launching a new product line. This analysis will assist the management team at [Your Company Name] in understanding the point at which revenue equals total costs and forecasting profits at various levels of sales.
II. Cost Analysis
A. Fixed Costs
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Cost Category |
Monthly Cost ($) |
|---|---|
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Rent for facility |
$10,000 |
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Salaries for staff |
$50,000 |
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Insurance premiums |
$2,000 |
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Utilities |
$3,000 |
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Equipment depreciation |
$5,000 |
B. Variable Costs
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Cost Category |
Cost per Unit ($) |
|---|---|
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Raw materials |
$5 |
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Manufacturing overhead |
$3 |
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Sales commissions |
10% of sales |
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Marketing expenses |
$2,000 per month |
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Packaging costs |
$1 per unit |
III. Break-Even Point Calculation
A. Formula
We utilize the formula:
Break Even Point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit).
B. Calculation
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Fixed Costs: $70,000 per month
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Selling Price per Unit: $20
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Variable Cost per Unit: $9
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Break-Even Point = $70,000 / ($20 - $9) = 5,833 units
IV. Profit Volume Analysis
A. Forecasting Profits
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Sales Volume (Units) |
Revenue ($) |
Total Costs ($) |
Profit ($) |
|---|---|---|---|
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2000 |
40,000 |
82,000 |
-42,000 |
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4000 |
80,000 |
112,000 |
-32,000 |
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6000 |
120,000 |
142,000 |
-22,000 |
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8000 |
160,000 |
172,000 |
-12,000 |
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10000 |
200,000 |
202,000 |
-2,000 |
B. Sensitivity Analysis
Key variables affecting profits:
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Key variables affecting profits |
Increase (+) / Decrease (-) |
Impact on Profit ($) |
|---|---|---|
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Selling Price |
+$2 |
+$8,000 |
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Variable Cost |
-$1 |
+$4,000 |
V. Conclusion
This Break Even And Profit Volume Cost Analysis provides valuable insights into the financial feasibility of the new product line. It is recommended that [Your Company Name] focus on optimizing variable costs and consider pricing strategies to maximize profits.
VI. Additional Details
A. Market Research
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Conducted market research indicates a strong demand for the proposed product, with potential sales estimated at 10,000 units per month.
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Customer surveys suggest a willingness to pay up to $25 per unit for the product.
B. Competitor Analysis
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Competitor analysis reveals similar products priced between $18 to $22 per unit.
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However, none of the competitors offer the unique features that our product provides.
VII. Recommendations
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Based on the analysis, it is recommended to proceed with the launch of the new product line.
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Implement strategies to minimize variable costs and optimize pricing to maximize profits.
