Break Even and Profit Volume Cost Analysis
Prepared By : | [Your Name] |
Department : | [Your Department] |
Company : | [Your Company Name] |
Company Address: | [Your Company Address] |
Company Social Media: | [Your Company Social Media] |
I. Introduction
In this Break Even And Profit Volume Cost Analysis, we aim to analyze the financial viability of launching a new product line. This analysis will assist the management team at [Your Company Name] in understanding the point at which revenue equals total costs and forecasting profits at various levels of sales.
II. Cost Analysis
A. Fixed Costs
Cost Category | Monthly Cost ($) |
|---|
Rent for facility | $10,000 |
Salaries for staff | $50,000 |
Insurance premiums | $2,000 |
Utilities | $3,000 |
Equipment depreciation | $5,000 |
B. Variable Costs
Cost Category | Cost per Unit ($) |
|---|
Raw materials | $5 |
Manufacturing overhead | $3 |
Sales commissions | 10% of sales |
Marketing expenses | $2,000 per month |
Packaging costs | $1 per unit |
III. Break-Even Point Calculation
A. Formula
We utilize the formula:
Break Even Point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit).
B. Calculation
Fixed Costs: $70,000 per month
Selling Price per Unit: $20
Variable Cost per Unit: $9
Break-Even Point = $70,000 / ($20 - $9) = 5,833 units
IV. Profit Volume Analysis
A. Forecasting Profits
Sales Volume (Units) | Revenue ($) | Total Costs ($) | Profit ($) |
|---|
2000 | 40,000 | 82,000 | -42,000 |
4000 | 80,000 | 112,000 | -32,000 |
6000 | 120,000 | 142,000 | -22,000 |
8000 | 160,000 | 172,000 | -12,000 |
10000 | 200,000 | 202,000 | -2,000 |
B. Sensitivity Analysis
Key variables affecting profits:
Key variables affecting profits | Increase (+) / Decrease (-) | Impact on Profit ($) |
|---|
Selling Price | +$2 | +$8,000 |
Variable Cost | -$1 | +$4,000 |
V. Conclusion
This Break Even And Profit Volume Cost Analysis provides valuable insights into the financial feasibility of the new product line. It is recommended that [Your Company Name] focus on optimizing variable costs and consider pricing strategies to maximize profits.
VI. Additional Details
A. Market Research
Conducted market research indicates a strong demand for the proposed product, with potential sales estimated at 10,000 units per month.
Customer surveys suggest a willingness to pay up to $25 per unit for the product.
B. Competitor Analysis
Competitor analysis reveals similar products priced between $18 to $22 per unit.
However, none of the competitors offer the unique features that our product provides.
VII. Recommendations
Based on the analysis, it is recommended to proceed with the launch of the new product line.
Implement strategies to minimize variable costs and optimize pricing to maximize profits.
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