BA 101 Lecture Notes - Lecture 14: Compound Interest, Marketing Mix, Interest
30 May 2018
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Business 101 – Lecture 14 – Breakeven & Marketing
Strategy
Breakeven
• Total Revenues = Total Costs
o Comes from the profit equation
o If total revenues = total costs, profit is 0
• Before a company reaches breakeven, the profit is negative
• After breakeven, the profit is positive
• Revenue is positive before and after breakeven
• The company wants to breakeven number to be lower so that they can breakeven quicker
so that profits can be positive
o There are a lot of start-up expenses such as variable costs and fixed costs
o A lot of investments to make
• The breakeven point is the point (units or dollars) at which total cost and total revenue are
equal – there is no net loss and there is no net gain
• Breakeven has sold enough units to pay for all the fixed costs that were made before they
started to make the units
• Until they reach breakeven, the profits are negative
• Breakeven does not tell us timing and the flow of cash
•
Break-even Analysis
• How many units do you have to sell in order to break even (cover all costs)?
• Total Costs = Total Revenues
• BE(u) = Fixed Costs / Price – Variable Cost per Unit (contribution margin / unit)
- Example:
o Total Cost =
▪ Fixed Cost + (Variable Cost x units sold)
• Fixed cost = $100,000
• Variable cost = $8.00 per CD
o Total Revenue =
▪ Price x units sold
• Price = $15.00
o 100,000 + (8x) = 15x
▪ solve for x
Advantages of Breakeven
• Quick assessment of potential for a business or a new product
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Business 101 lecture 14 breakeven & marketing. Break-even analysis: how many units do you have to sell in order to break even (cover all costs), total costs = total revenues, be(u) = fixed costs / price variable cost per unit (contribution margin / unit) Advantages of breakeven: quick assessment of potential for a business or a new product. It identifies a finite target" number in revenue and / or units. Shortcomings of breakeven: breakeven assumes all products are sold at the same rice, breakeven does not specify a time frame, breakeven does not consider the net present value of money. The potential buyer estimates the future cash flows the business will generate. The cash flow is discounted" into one lump-sum present value amount = ,000: good deal buyer will benefit: If the buyer purchases the business for less than ,000 because of a positive npv investment: bad deal buyer will pay too much:
