Break Even Point Calculation

I am in a state of confusion. I am doing a project for a rental firm and I need to know the break even point . Assume we have only one type of car and all vehicle will be sold after 2 years or after 100000 KMS. Values available - Number of rentals, Rate per rental, Business overhead for this vehicle, Maintenance cost for this vehicle. I need to take into account the vehicle initial cost, its depreciation and resale value as well. I want to know the number of cars required to break even. You can use fictious value for explanation.

So the equation When I have a total of N cars of same model in my agency would be ,

N( vehicle cost - Resale value + maintenance & repair cost) +Business overhead = Rate per day * no. of rental days. Is there any other factors that I could have possibly missed?

Thank in advance for your help!!!!(Bow)

Re: Break Even Point Calculation

If all you need to know are the other factors that could be taken into account then this isn't really a maths problem it's a business problem and if you are working for the firm you probably know more than anyone here.

As far as the maths goes, since vehicle cost is a lifetime cost you want all the cost and profit figures to be related to the lifetime of the vehicle so you should not use annual or monthly costs. If you have information for the maintenance costs per month then you should convert that into the maintenance costs over the lifetime of the car.

Other than that there is a small mistake in your formula, the term "Rate per day * no. of rental days" should be N*(Rate per day * no. of rental days)

Re: Break Even Point Calculation

I agree that it would be better to use N*(rate per day * no. of rental days **per car**), because this way the N factor is consistent. But first you need to be a bit more specific about what you mean by "break even." I would suggest that you consider total revenues minus costs + depreciation for the business in a given time period - say per year - to determine what volume you need to break even in that year. You won't be buyng all new cars every year, nor are you selling off all the old cars every year, so it's better to simply include the depreciation of the car fleet rather than vehicle cost - resale value.

Re: Break Even Point Calculation

Thanks Ebaines,

Suppose if all these vehicle data and business overhead is available with Finance, what would be the best way to calculate depreciation? Shouldnt vehicle cost - resale value do the trick?

Re: Break Even Point Calculation

Vehicle cost - resale value will do the trick. It covers the cost which spans the lifetime of the car. You will also need to put overheads into a figure that covers the lifetime of the car so that the units of every term in the equation are the same. I assume you know overheads per year and the number of years a car lasts for so just multiply those 2 to get the overheads per car lifetime.

Re: Break Even Point Calculation

Quote:

Originally Posted by

**sarathpillai** Thanks Ebaines,

Suppose if all these vehicle data and business overhead is available with Finance, what would be the best way to calculate depreciation? Shouldnt vehicle cost - resale value do the trick?

Depreciation cost/year = (purchase cost - resale value)/expected lifetime in years