Break-Even Analysis and Forecasting

This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page.

Professor Hossein Arsham   

---

The following JavaScript calculates the break-even point for a firm based on the information you provide. A firm's break-even point occurs when at a point where total revenue equals total costs.

Break-even analysis depends on the following variables:

1. Selling Price per Unit:The amount of money charged to the customer for each unit of a product or service.

2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product. This amount does not vary as production increases or decreases, until new capital expenditures are needed.

3. Variable Unit Cost: Costs that vary directly with the production of one additional unit.

   Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected unit sales times the variable unit cost.

4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish to find out the number of units that must be sold in order to produce a profit of zero (but will recover all associated costs)

Each of these variables is interdependent on the break-even point analysis. If any of the variables changes, the results may change.

Total Cost: The sum of the fixed cost and total variable cost for any given level of production, i.e., fixed cost plus total variable cost.

Total Revenue: The product of forecasted unit sales and unit price, i.e., forecasted unit sales times unit price.

Break-Even Point: Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs). In other words, the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.

One may use the JavaScript to solve some other associated managerial decision problems, such as:

• setting price level and its sensitivity
• targeting the "best" values for the variable and fixed cost combinations
• determining the financial attractiveness of different strategic options for your company

The graphic method of analysis (below) helps you in understanding the concept of the break-even point. However, the break-even point is found faster and more accurately with the following formula:

Q = F_C / (U_P - V_C)

where:

Q = Break-even Point, i.e., Units of production (Q),

F_C = Fixed Costs,

V_C = Variable Costs per Unit

U_P = Unit Price

Therefore,

Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)

You may like using the JavaScript for performing some sensitivity analysis on the above parameters to investigate their impacts on your decision-making.

---

Selling Price per Unit ($) :
Total Fixed Costs ($) :
Variable Cost per Unit ($) :
Forecasted Net Profit :
Managerial Information at the Break-Even Point	Numerical Results
Units Sold :
Revenue ($) :
Fixed Costs ($) :
Variable Costs ($) :
Total Costs ($) :
Loss/Profit ($) :

---

An Alternative Break-Even Calculator

Interest Rate or Taxes (%) :
Total Fixed Costs ($) :
Variable Cost per Unit ($) :
Selling Price per Unit ($) :
Break-Even Point :

---

Back to:
Time-Critical Decision Making for Economics and Finance

---

Kindly email your comments to:
Professor Hossein Arsham

---

---

The Copyright Statement: The fair use, according to the 1996 Fair Use Guidelines for Educational Multimedia, of materials presented on this Web site is permitted for non-commercial and classroom purposes only.
This site may be translated and/or mirrored intact (including these notices), on any server with public access. All files are available at http://home.ubalt.edu/ntsbarsh/Business-stat for mirroring.

Kindly e-mail me your comments, suggestions, and concerns. Thank you.

Professor Hossein Arsham   

---

Back to:

Dr Arsham's Home Page