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oon rar x | | Sto x | @ ADM x | @ Budi x | @ ADN X | 2 Gar x @ cher x om Gar X | | Stuc x | & Wor x | Ff Nor x | JB Nor x | BY Fi x | + v 0 x C @ viewer.geu.edu/HGAI oo < x="" »="" 0="" 49="" of="" 384="" module="" 4="" breakeven="" analysis="" 4="" preview="" to="" ossigamit="" a="" questiong="" learning="" objectives:="" .="" m="" understand="" breakeven="" analysis="" m="" apply="" breakeven="" analysis="" in="" new-project="" decision="" making="" the="" classification="" of="" costs="" by="" their="" responses="" to="" changes="" in="" volume="" has="" applications="" in="" many="" deci-="" sion-making="" contexts.="" the="" most="" prominent="" context,="" which="" is="" especially="" prevalent="" in="" the="" tradi-="" tional="" manufacturing="" world,="" is="" breakeven="" analysis.="" public="" organizations="" also="" find="" breakeven="" analysis="" useful="" in="" making="" planning="" decisions="" related="" to="" new="" projects="" and="" programs.="" [-]="" definition="" of="" breakeven="" analysis="" ®="" @mbq="" oo="" 2="" e="..." 8="" ms="" ow="" oon="" rar="" x="" |="" |="" sto="" x="" |="" @="" adm="" x="" |="" @="" budi="" x="" |="" @="" adn="" x="" |="" 2="" gar="" x="" @="" cher="" x="" om="" gar="" x="" |="" |="" stuc="" x="" |="" &="" wor="" x="" |="" ff="" nor="" x="" |="" jb="" nor="" x="" |="" by="" fi="" x="" |="" +="" vo="" o_o|="" x="" c="" @="" viewer.gcu.edu/hgaket="" oo="">< %="" »="" 0="" 49="" of="" 384="" definition="" of="" breakeven="" analysis="" breakeven="" analysis="" is="" a="" method="" used="" to="" determine="" the="" volume="" or="" the="" number="" of="" products="" or="" ser-="" vices="" that="" must="" be="" sold="" or="" in="" some="" other="" way="" reimbursed="" at="" a="" given="" price="" in="" order="" for="" the="" opera-="" tion's="" total="" revenue="" to="" be="" exactly="" equal="" to="" its="" expenses.="" the="" service="" level="" at="" which="" this="" occurs="" is="" called="" the="" breakeven="" point,="" and="" it="" can="" be="" expressed="" in="" terms="" of="" unit="" sales="" or="" dollar="" sales.="" a="" vol-="" 4="" a="" ume="" of="" sales="" or="" activities="" over="" and="" above="" the="" breakeven="" point="" results="" in="" profit,="" and="" sales="" or="" activ-="" °="" ities="" below="" the="" breakeven="" point="" results="" in="" a="" loss.="" nn="" breakeven="" analysis="" is="" an="" excellent="" tool="" to="" use="" when="" planning="" out="" a="" new="" program.="" to="" make="" sound="" financial="" decisions,="" financial="" managers="" in="" government="" and="" nonprofit="" organizations="" need="" to="" know="" whether="" a="" proposed="" new="" program="" can="" break="" even="" given="" its="" projected="" activity="" volume="" and="" cost="" structure.="" conversely,="" financial="" managers="" may="" be="" required="" to="" answer="" questions="" about="" what="" to="" do="" if="" the="" demand="" for="" an="" existing="" service="" is="" declining,="" for="" instance,="" as="" a="" result="" of="" the="" post-2008="" economic="" recession.="" nonprofits,="" specifically,="" may="" need="" to="" change="" the="" cost="" structure="" of="" their="" pro-="" grams="" to="" compensate="" for="" reduced="" activity="" volume="" if="" their="" programs="" are="" to="" break="" even.="" 27="" b="" ars="" 627q®@="" ©="" @embeqo="">» ae oon rar x | | Sto x | @ ADM x | @ Budi x | @ ADN X | 2 Gar x @ cher x om Gar X | | Stuc x | & Wor x | Ff Nor x | JB Nor x | BY Fi x | + v 0 x C @ viewer.geu.edu/HGAI oo < x="" »="" 0="" 50="" of="" 384="" .="" a="" simple="" equation="" mathematically,="" the="" breakeven="" point="" can="" be="" derived="" by="" equating="" total="" revenues="" (tr)="" and="" total="" costs="" (tc):="" v4="" tr="TC" @="" .="" nn="" total="" revenues="" and="" total="" costs="" in="" turn="" can="" be="" expressed="" as="" tr="PxQ" @)="" and="" tc="FC+Q" x="" uvc,="" 3)="" where="" pis="" the="" price,="" a="" q="" is="" the="" volume,="" fc="" is="" the="" fixed="" cost,="" and="" [-]="" uvc="" is="" the="" unit="" variable="" cost.="" ©="" )="" ©="" mb="" oo="" a="" bo="" fe="" sb="" me="" c2s0®a="" oon="" rar="" x="" |="" |="" sto="" x="" |="" @="" adm="" x="" |="" @="" budi="" x="" |="" @="" adn="" x="" |="" 2="" gar="" x="" @="" cher="" x="" om="" gar="" x="" |="" |="" stuc="" x="" |="" &="" wor="" x="" |="" ff="" nor="" x="" |="" jb="" nor="" x="" |="" by="" fi="" x="" |="" +="" v="" 0="" x="" c="" @="" viewer.gcu.edu/hgaket="" oo="">< % » 0 rv 50 of 384 pxq=fc+qxuvc @ solving equation 4 for breakeven volume, one gets equation 5: fc q=5——r ©) vd pp-uve equation 5 indicates that the breakeven volume can be calculated by dividing the difference nn between price and the unit variable cost, also known as the contribution margin, into the fixed cost of a program. as can be seen from the equation, the higher the fixed cost and the lower the contribution margin, the higher the required volume for a program to break even. here is a simplified example of breakeven analysis from the government services sector. assume a small town provides a swimming pool for its residents and charges $5 for daily admis- sion. the variable costs for the pool are minimal: approximately $1 each day the pool is open to cover chemicals, changing the water in the pool, and other items that vary with the level of pub- lic usage of the pool. the management, maintenance, depreciation, and public safety costs total approximately $100,000 for the season. therefore, how many people must use the facility, paying $5 each for daily admission, for the pool to break even? to solve this problem, we can plug the fixed cost, admission fee, and unit variable cost into . equation 5. fc $100,000 pic bos =25,000 © © mb oo a bo fe 0 ms 628q®@ oon rar x | | sto x | @ adm x | @ budi x | @ adn x | 2 gar x @ cher x om gar x | | stuc x | & wor x | ff nor x | jb nor x | by fi x | + v 0 x c @ viewer.geu.edu/hgai 51 of 384 are trying to determine how many tickets they will need to sell in order to break even. they esti- mate their total fixed costs to be $400,000. the variable cost is $10 per ticket. if circus manage- vd 5 ment sets the ticket price at $60, how many tickets does the box office have to sell for the circus | t 1. the middlebury town council has invited the circus to come to town. the circus owners to break even? nn 2. clifftown’s parks and recreation department is introducing a new summer day camp for children in elementary school, providing programming from 8:00 a.m. to 5:00 p.m. monday 29 b bupget tools ® @mbq oo 2 e g ms cn0wa %="" »="" 0="" rv="" 50="" of="" 384="" pxq="FC+QxUVC" @="" solving="" equation="" 4="" for="" breakeven="" volume,="" one="" gets="" equation="" 5:="" fc="" q="5——r" ©)="" vd="" pp-uve="" equation="" 5="" indicates="" that="" the="" breakeven="" volume="" can="" be="" calculated="" by="" dividing="" the="" difference="" nn="" between="" price="" and="" the="" unit="" variable="" cost,="" also="" known="" as="" the="" contribution="" margin,="" into="" the="" fixed="" cost="" of="" a="" program.="" as="" can="" be="" seen="" from="" the="" equation,="" the="" higher="" the="" fixed="" cost="" and="" the="" lower="" the="" contribution="" margin,="" the="" higher="" the="" required="" volume="" for="" a="" program="" to="" break="" even.="" here="" is="" a="" simplified="" example="" of="" breakeven="" analysis="" from="" the="" government="" services="" sector.="" assume="" a="" small="" town="" provides="" a="" swimming="" pool="" for="" its="" residents="" and="" charges="" $5="" for="" daily="" admis-="" sion.="" the="" variable="" costs="" for="" the="" pool="" are="" minimal:="" approximately="" $1="" each="" day="" the="" pool="" is="" open="" to="" cover="" chemicals,="" changing="" the="" water="" in="" the="" pool,="" and="" other="" items="" that="" vary="" with="" the="" level="" of="" pub-="" lic="" usage="" of="" the="" pool.="" the="" management,="" maintenance,="" depreciation,="" and="" public="" safety="" costs="" total="" approximately="" $100,000="" for="" the="" season.="" therefore,="" how="" many="" people="" must="" use="" the="" facility,="" paying="" $5="" each="" for="" daily="" admission,="" for="" the="" pool="" to="" break="" even?="" to="" solve="" this="" problem,="" we="" can="" plug="" the="" fixed="" cost,="" admission="" fee,="" and="" unit="" variable="" cost="" into="" .="" equation="" 5.="" fc="" $100,000="" pic="" bos="25,000" ©="" ©="" mb="" oo="" a="" bo="" fe="" 0="" ms="" 628q®@="" oon="" rar="" x="" |="" |="" sto="" x="" |="" @="" adm="" x="" |="" @="" budi="" x="" |="" @="" adn="" x="" |="" 2="" gar="" x="" @="" cher="" x="" om="" gar="" x="" |="" |="" stuc="" x="" |="" &="" wor="" x="" |="" ff="" nor="" x="" |="" jb="" nor="" x="" |="" by="" fi="" x="" |="" +="" v="" 0="" x="" c="" @="" viewer.geu.edu/hgai="" 51="" of="" 384="" are="" trying="" to="" determine="" how="" many="" tickets="" they="" will="" need="" to="" sell="" in="" order="" to="" break="" even.="" they="" esti-="" mate="" their="" total="" fixed="" costs="" to="" be="" $400,000.="" the="" variable="" cost="" is="" $10="" per="" ticket.="" if="" circus="" manage-="" vd="" 5="" ment="" sets="" the="" ticket="" price="" at="" $60,="" how="" many="" tickets="" does="" the="" box="" office="" have="" to="" sell="" for="" the="" circus="" |="" t="" 1.="" the="" middlebury="" town="" council="" has="" invited="" the="" circus="" to="" come="" to="" town.="" the="" circus="" owners="" to="" break="" even?="" nn="" 2.="" clifftown’s="" parks="" and="" recreation="" department="" is="" introducing="" a="" new="" summer="" day="" camp="" for="" children="" in="" elementary="" school,="" providing="" programming="" from="" 8:00="" a.m.="" to="" 5:00="" p.m.="" monday="" 29="" b="" bupget="" tools="" ®="" @mbq="" oo="" 2="" e="" g="" ms="">