Results 1 to 6 of 6

Math Help - Break-even point to get company back to profitability

  1. #1
    Newbie
    Joined
    Dec 2012
    From
    Seoul
    Posts
    12

    Break-even point to get company back to profitability

    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 lets 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 cant change pricing wed 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?
    Follow Math Help Forum on Facebook and Google+

  2. #2
    MHF Contributor
    Joined
    Sep 2012
    From
    Australia
    Posts
    3,612
    Thanks
    591

    Re: Break-even point to get company back to profitability

    Hey phi1234.

    What do you define as overhead? Also is profit in this case just revenue - total costs?
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Dec 2012
    From
    Seoul
    Posts
    12

    Re: Break-even point to get company back to profitability

    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!
    Follow Math Help Forum on Facebook and Google+

  4. #4
    MHF Contributor
    Joined
    Sep 2012
    From
    Australia
    Posts
    3,612
    Thanks
    591

    Re: Break-even point to get company back to profitability

    The idea of fixed costs means that you include the same figure regardless of how many units you sell (even none). The variable cost is a function of how many units you sell.
    Follow Math Help Forum on Facebook and Google+

  5. #5
    Newbie
    Joined
    Dec 2012
    From
    Seoul
    Posts
    12

    Re: Break-even point to get company back to profitability

    Yes, but I was under the impression that break-even point is Fixed Cost/Gross Margin per Unit. Wouldn't you need to make $10 M in profit to get back to break-even, not $5M?
    Follow Math Help Forum on Facebook and Google+

  6. #6
    MHF Contributor
    Joined
    Sep 2012
    From
    Australia
    Posts
    3,612
    Thanks
    591

    Re: Break-even point to get company back to profitability

    Since I'm not in your class, I'll ask what the formula is for final net profit as well as that for all sub-elements like variable costs as a function of the number of units.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Break even point
    Posted in the Business Math Forum
    Replies: 8
    Last Post: June 9th 2010, 12:17 PM
  2. break even point
    Posted in the Business Math Forum
    Replies: 1
    Last Post: March 31st 2010, 02:43 AM
  3. Break Even Point
    Posted in the Business Math Forum
    Replies: 2
    Last Post: October 19th 2009, 11:41 AM
  4. Break even point
    Posted in the Advanced Statistics Forum
    Replies: 1
    Last Post: May 16th 2008, 12:33 PM
  5. Help needed with break point/change point models.
    Posted in the Advanced Statistics Forum
    Replies: 0
    Last Post: October 4th 2007, 04:41 AM

Search Tags


/mathhelpforum @mathhelpforum