What do you define as overhead? Also is profit in this case just revenue - total costs?
Background info: Profits are at a loss of $10M. Revenue=$30M and Cost=$40M. Variable Costs=$25 M and Fixed Cost=$15M.
"From an operating standpoint, looking at this it looks like for every $30 million in sales we subtract out the labor costs or the variable costs and we make about a $5 million profit before we have to pay for the overhead. And let’s see, so it looks like, to get this company back to breakeven we need to come up with a $5 million profit somehow. So either we need to cut these costs by $5 million or if we can’t change pricing we’d have to increase sales to say $60 million, which would put us at a $5 million in profit before overhead."
I don't understand the bold-faced part. I understand he's looking at this from an operating standpoint, but to get company back to break-even, how can you ignore fixed costs?
Overhead is fixed costs. Profit=Revenue-Total costs. As a result, I just don't understand how you're able to ignore fixed costs when calculating the break-even point. Wouldn't you need to get the number of units sold in order to calculate it? Thanks!