Which of the following conditions would cause the break-even point to increase

A breakeven analysis determines the sales volume your business needs to start making a profit, based on your fixed costs, variable costs, and selling price. It often is used in conjunction with a sales forecast when developing a pricing strategy, either as part of a marketing plan or a business plan.

The formula for a breakeven analysis is:

Fixed costs/(Revenue per unit-Variable costs per unit)

Fixed Costs

Fixed costs are expenses that must be paid whether or not any units are produced. They are fixed over a specified period of time or range of production, and examples include:

• Business premises lease (or mortgage) costs over the contract period
• Startup loan payments (if you financed the business startup costs)
• Property taxes
• Insurance
• Vehicle leases (or loan payments if the vehicle is purchased)
• Equipment (machinery, tools, computers, etc.)
• Payroll (if employees are on salary)
• Utilities
• Accounting fees

Fixed costs are easy to calculate for existing businesses, but new businesses must do research to get the most accurate figures available.

Variable Costs

Unit costs vary depending on the number of products produced and other factors. For instance, the cost of the materials needed and the labor used to produce units isn't always the same. Examples of variable costs include:

• Wages for commission-based employees (such as salespeople) or contractors
• Utility usage—electricity, gas, or water—that increases with activity 
• Raw materials
• Shipping
• Advertising (can be fixed or variable)
• Equipment repair
• Sales tools such as credit card processing fees

Sample Computation

Suppose that your fixed costs for producing 30,000 widgets are $30,000 a year.

Your variable costs are $2.20 for materials, $4 for labor, and $0.80 for overhead for a total of $7.

If you choose a selling price of $12.00 for each widget, then:

$30,000/($12-$7)=6,000 units.

This means that selling 6,000 widgets at $12 apiece covers your costs of $30,000. Each unit sold beyond 6,000 generates $5 worth of profit. A sample breakdown leading to this calculation might look soething like this:

Fixed Costs for 30,000 widgets (per year) Business Lease$15,000Property Taxes$5,000Insurance$4,000Equipment$3,000Utilities$3,000Total Fixed Costs$30,000Variable Costs (per unit produced) Materials$2.20Labour$4.00Overhead$.80Total Variable Cost (Per Unit)$7.00Breakeven Selling Price Per Unit$12.00Selling price - variable costs$5.00#Units to sell/year to breakeven ($30,000 / $5.00)6000Profit Targets #Units to sell/year to generate $10,000 profit8000#Units to sell/year to generate $50,000 profit16000

Using BreakEven Calculations

A breakeven analysis allows you to apply various scenarios to your breakeven point and possibly increase profits. Some reasons to calculate the analysis include:

The break-even point of a business should be kept as low as possible, in order to keep the firm profitable even when sales decline. There are several ways to reduce the break-even point, as noted in the following points.

Reduce Fixed Costs

The typical company has many fixed costs, such as periodic rent payments, the salaries of administrative staff, and underutilized production equipment. By reducing these costs, the firm needs fewer sales to cover the remaining fixed costs.

Reduce Variable Costs

The break-event point can be reduced by increasing the average contribution margin earned on each sale. One way to do so is to reduce variable costs. One approach is to redesign products to reduce costs. Another option is to standardize components across product platforms, in order to obtain volume purchase discounts. Yet another possibility is to increase the reliability of products, so that they require fewer warranty repairs.

Improve the Sales Mix

Another way to improve the contribution margin is to sell a higher proportion of goods and services with higher contribution margins. This can be done by altering marketing activities to favor high-margin products, as well as by increasing commissions on high-margin items.

Increase Prices

Yet another way to improve the contribution margin is to set higher prices. This approach only works if customers are not especially sensitive to price increases; otherwise, they will buy elsewhere, resulting in a net reduction in sales. Increasing prices is a better option when the company is seen as a high-quality provider or the products are heavily branded.

Summary

In reality, it is not that easy to reduce the break-even point. Cutting fixed costs may reduce a firm’s production capacity, while heavy competition may prevent one from increasing prices. Consequently, the actions taken will depend on the circumstances of both the business and the market. Certainly, though, one must have a deep knowledge of the cost structure of a business in order to reduce the break-even point.

Which of the following conditions would cause a break

What conditions would cause the break

When would a breakeven point increase quizlet?

Which of the following will increase a company's breakeven point quizlet?