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Math Help - Breakeven

  1. #1
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    Breakeven

    Hello,

    Is the standard breakeven formula sufficient in a scenario where there is no "sales price"?

    For example, if I want to invest in a piece of equipment that costs $100, and the variable cost per unit is $10, and there is no mark-up on the unit so the "sales price" would also be $10. Is it fair to say the breakeven is = 100/10 = 10 units?

    I know breakeven is based on unit contribution margin so I'm unsure if this standard approach is appropriate.

    Thank you!
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  2. #2
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    Your example doesn't make any sense...please post an actual problem.
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  3. #3
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    Hi,

    I'm looking at an investment of 1,500,000 in a long-term rental of a piece of equipment (fixed cost). Currently without the equipment it costs me 75,000 to produce one unit (variable cost). It is an internal product so there is no mark-up or sales price. Essentially the 75,000 cost just gets passed through.

    My assumption is that the yield of the piece of equipment would be 1,500,000/75,000 = 20 units. Essentially after I produce 20 units I've covered the investment in the new equipment or essentially broke even.

    I've been trying to find the best way to calculate (based on historical costs) how to represent the impact of investing in the equipment.

    Hope this makes it a little more clear.

    Thanks for your help!
    Erin
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  4. #4
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    edit replied before second post..... my reply doesn't fit with the second post.

    Also i never answer questions for real businesses that might sue me if i am wrong.
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  5. #5
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    Thank you for the explanation, so I understand that breakeven is not appropriate in this situation as without the unit contribution margin I technically will never cover the fixed cost.

    Appreciate the help
    Last edited by dagny824; July 8th 2010 at 02:11 PM. Reason: Received the answer
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