đ
đ´ 2 Easy Steps: Break Even Analysis for Cost Volume Profit Analysis Tutorial - YouTube
Channel: unknown
[0]
Break Even Analysis in 2 Easy Steps: Cost
Volume Profit Analysis Break Even Analysis
[1]
Tutorial
[2]
Alright.
[3]
Welcome back again to MBAbullshit.com.
[4]
The topic for this video is âCost Volume
Profit Analysisâ or CVP.
[14]
It is also sometimes referred to as âBreak
Even Analysisâ or BEP for Break Even Point.
[23]
Alright, letâs get down to it.
[28]
Remember you can always go back to MBAbullshit.com.
[31]
So now, letâs try first to look for the
breakeven point for business which is selling
[42]
only one type of product.
[45]
So we first have to do what we call âBreak
Even Point Analysis.â
[50]
This is a part or maybe even the first major
fundamental part of âCost Volume Profit
[61]
Analysis.â
[62]
So for example, your business sells watches
at ten dollars each and it costs you three
[71]
dollars in variable costs to make each watch.
[76]
Now when you say variable cost, that might
mean the plastic and the metal which goes
[82]
into each watch that you make.
[85]
Okay?
[86]
Thatâs just an example.
[90]
It cost you one hundred dollars per month
in fixed costs to run your watch business.
[98]
So when we say fixed costs, an example might
be the rent.
[102]
You have a flat fee of rent and maybe salaries
of one hundred dollars per month for the storekeeper
[112]
and the rent.
[113]
And it doesnât change even when you sell
more watches or even when you sell less watches.
[120]
Itâs always the same.
[124]
Unlike with the plastic and metal as your
variable cost, if you sell more watches then
[131]
you also have to pay for more plastic and
metal to make more watches.
[136]
If you sell less watches, then you have to
pay for less plastic and metal to make the
[145]
watches.
[146]
So thatâs why itâs called variable, meaning
it changes a lot.
[152]
So now, if you sell twelve watches in one
month, how much will your business earn or
[160]
how much will your business lose?
[164]
So to do that, we use this formula.
[168]
First, we look for the gross margin per watch,
youâre selling it at ten dollars per watch
[178]
and it costs you a variable cost of three
dollars to make each watch.
[184]
So you make a gross margin of seven dollars
per watch.
[190]
Now notice that this gross margin is not yet
your final profit.
[197]
Why is it not yet your final profit?
[200]
Because you still have to pay for your fixed
cost such as rent and stuff like that.
[208]
So seven dollars per watch, okay?
[211]
Youâre earning a gross margin of seven dollars
per watch or a margin of seven dollars per
[216]
watch multiplied by twelve watches sold and
you have a total gross margin for the month
[224]
or gross profit.
[225]
Some people called it âGross Profitâ but
I find it confusing because it might be confused
[231]
with âFile Profitâ, so itâs better to
use the word margin.
[236]
So you have the total of gross margin for
the month of eighty four dollars.
[242]
Again, this is not yet your final profit,
you have to subtract the fixed cost.
[249]
So, less the fixed cost of one hundred dollars
per month, as you remember from the last slide,
[257]
and you make a loss of sixteen dollars.
[261]
Eighty four dollars minus one hundred dollars
equals negative sixteen dollars.
[266]
Itâs negative so that means you lose money.
[272]
So the important question is: How many watches
do you need to sell so that you will not lose
[280]
any money?
[281]
So that you will at least break even.
[285]
So break even means if youâre selling enough
so that you donât lose any money.
[291]
So at breakeven you are not yet earning any
money but youâre already not losing any
[299]
money anymore.
[302]
So how many watches do you need to sell?
[305]
So for that, you need to use this formula.
[310]
It looks like this.
[313]
The breakeven point in number of units equals
your fixed costs divided by your selling price
[323]
minus your variable costs.
[325]
So it looks like this.
[327]
As you remember, the fixed cost is one hundred
dollars a month and you divide that by your
[337]
selling price of ten dollars and then you
subtract the three dollars in variable costs.
[345]
And youâll come up with a number of one
hundred dollars divided by seven dollars;
[353]
because this now is seven dollars.
[355]
And youâll come up with the number of fourteen
point twenty nine.
[360]
So you need to sell fourteen point twenty
nine units or fourteen point twenty nine watches
[367]
in order to break even so that you do not
lose any money.
[373]
However, remember that you cannot sell part
of the watch.
[378]
You can sell fourteen watches but thatâs
not enough.
[382]
So you need to sell an additional point twenty
nine watches.
[390]
But obviously you cannot sell point twenty
nine watches.
[395]
You sell one watch or two watches or three
watches.
[399]
So therefore, you must round it off to the
higher number of fifteen units.
[406]
Okay?
[407]
So in regular math, you usually round off
the amount to the nearer whole number.
[416]
So in this case, you might round it off to
fourteen because itâs nearer to this than
[422]
fifteen.
[424]
However, in this case if you round it off
to the lower number fourteen, you will still
[431]
lose money.
[432]
So, you always round it off to the higher
number, fifteen units.
[438]
Okay?
[439]
So that is your breakeven point in number
of units or in number of watches.
[444]
You need to sell fifteen watches in order
to break even.
[450]
In this case, you would probably earn a small
profit.
[453]
debbierojonan Page 1
Most Recent Videos:
You can go back to the homepage right here: Homepage