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    Break Even Answer Key

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    This document provides information and calculations for a break-even analysis of World Wide Lamps. It includes key terms like gross profit margin, expenses, revenue, and assets. The income statement shows a net loss for the month. The break-even analysis calculates that sales of $26,666.67 or 333 units would need to be reached for the company to break even after accounting for the $10,000 in monthly fixed costs.

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    Break Even Answer Key

    Uploaded by

    yea okay
    75 views8 pages
    This document provides information and calculations for a break-even analysis of World Wide Lamps. It includes key terms like gross profit margin, expenses, revenue, and assets. The income statement shows a net loss for the month. The break-even analysis calculates that sales of $26,666.67 or 333 units would need to be reached for the company to break even after accounting for the $10,000 in monthly fixed costs.

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    This document provides information and calculations for a break-even analysis of World Wide Lamps. It includes key terms like gross profit margin, expenses, revenue, and assets. The income statement shows a net loss for the month. The break-even analysis calculates that sales of $26,666.67 or 333 units would need to be reached for the company to break even after accounting for the $10,000 in monthly fixed costs.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    75 views8 pages

    Break Even Answer Key

    Uploaded by

    yea okay
    This document provides information and calculations for a break-even analysis of World Wide Lamps. It includes key terms like gross profit margin, expenses, revenue, and assets. The income statement shows a net loss for the month. The break-even analysis calculates that sales of $26,666.67 or 333 units would need to be reached for the company to break even after accounting for the $10,000 in monthly fixed costs.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 8

    Virtual Enterprises, International

    Purchase and Sale Transactions and Breakeven Analysis

    GLOSSARY OF TERMS

    Gross profit margin: sales revenue minus the cost of goods sold
    Gross profit margin percentage: gross profit expressed as a percentage of sales.
    Expenses: the cost of the goods or services that are used to operate a business.
    Fixed expenses: expenses that remain stable as sales increase or decrease.
    Revenue: income earned by a business from its operations.
    Net Income: the difference between gross profit and the operating expenses for a period of
    time.
    Variable expenses: expenses that vary as sales increase or decrease.
    Breakeven analysis: an analysis that is used to answer the question, “how much does the
    company have to sell, given its profit margin percentage, so that there is sufficient gross
    profit available to pay the company’s expenses?” If the level of sales is less than the
    breakeven level, the company will not be profitable, if the level of sales is greater than the
    breakeven level, the company will be profitable.
    • The breakeven point can be expressed in sales dollars (that is the dollar value of the
    sales the company must make in order to breakeven).
    • The breakeven point can also be expressed in units (that is the quantity of units that must
    be sold in order to breakeven).
    Merchandise Inventory: goods bought for resale to customers.
    Wholesaler: a business that sells to retail businesses.
    Retailer: a business that sells to end users (consumers).
    Depreciation: a method of allocating the cost of an asset over that asset's useful life. In VE,
    all assets are depreciated over 5 years, therefore the depreciation expense, per year, is
    20% of the cost of the asset.
    Assets: property or economic resources owned by a company or an individual.
    Liabilities: amounts owed to creditors; th eclaims of creditors on the assets of a business.
    Owners' equity (shareholders equity for a corporation): the owners' claims on or
    investment in a the assets of a business.
    World Wide Lamps
    Income Statement
    For the Month Ending 10/31/2009

    Sales 12000
    Returns 0
    This is a multi-step Net Sales 12000
    income statement. Cost of Goods Sold 7500
    * In the first step,
    Gross Profit 4500
    the gross profit is
    provided.
    * In the next step, Profit margin percentage = 37.50%
    the total expenses
    are provided. Salaries 4000
    * In the next step, Rent 1800
    the net income (or Depreciation 1500
    net loss) is Advertising 500
    provided.
    Payroll tax 306
    Insurance 100
    Utilities 445
    Interest 874
    401(k) 300
    Supplies 175
    Total 10000

    Net income (loss) (5500.00)

    Inventory, beginning of the year 0


    Purchases 10000
    Cost of direct labor 0
    Other direct costs 0
    Total 10000

    Inventory, end of year 2500

    Cost of goods sold 7500


    9

    Profit margin percentage =


    Gross profit/Total sales =

    You will need this ratio to


    determine the break even point

    This step is necessary


    because the quantity of
    merchandise inventory you
    buy may not be equal to
    the amount of
    merchandise inventory you
    sell.
    Break-even Analysis

    Data Required for Break-even Analysis


    Average selling price per sale 80
    Average cost of goods sold per sale 50
    Note: for sake of simplicity, in VE, all costs except cost of goods sold are
    Monthly fixed costs (monthly operating expenses) 10000 considered to be "fixed."
    Average profit percentage 0.375

    $ 80.00 $ 50.00
    # Units (Average) Break-even analysis
    sold Revenue Variable cost Fixed cost Total cost
    0 $ - $ - $ 10,000 $ 10,000 $80,000

    50 $ 4,000 $ 2,500 $ 10,000 $ 12,500


    100 $ 8,000 $ 5,000 $ 10,000 $ 15,000 $70,000
    150 $12,000 $ 7,500 $ 10,000 $ 17,500
    200 $16,000 $ 10,000 $ 10,000 $ 20,000 $60,000
    250 $20,000 $ 12,500 $ 10,000 $ 22,500

    Dollars
    300 $24,000 $ 15,000 $ 10,000 $ 25,000
    350 $28,000 $ 17,500 $ 10,000 $ 27,500 $50,000

    400 $32,000 $ 20,000 $ 10,000 $ 30,000


    450 $36,000 $ 22,500 $ 10,000 $ 32,500 $40,000
    500 $40,000 $ 25,000 $ 10,000 $ 35,000
    550 $44,000 $ 27,500 $ 10,000 $ 37,500
    $30,000
    600 $48,000 $ 30,000 $ 10,000 $ 40,000
    650 $52,000 $ 32,500 $ 10,000 $ 42,500
    700 $56,000 $ 35,000 $ 10,000 $ 45,000 $20,000
    750 $60,000 $ 37,500 $ 10,000 $ 47,500
    800 $64,000 $ 40,000 $ 10,000 $ 50,000 $10,000
    850 $68,000 $ 42,500 $ 10,000 $ 52,500
    900 $72,000 $ 45,000 $ 10,000 $ 55,000
    950 $76,000 $ 47,500 $ 10,000 $ 57,500 $-
    0 100 200 300 400 500 600 700 800 900 1000
    Units

    Revenue Variable cost Fixed cost Total cost

    Breakeven point in sales dollars:


    Total sales at breakeven * average profit percentage = fixed costs
    Total sales at breakeven * .375 = 10000
    Total sales at breakeven = $26,666.67
    Break-even Analysis

    Data Required for Break-even Analysis


    Average selling price per sale 80
    Average cost of goods sold per sale 50
    Note: for sake of simplicity, in VE, all costs except cost of goods sold are
    Monthly fixed costs (monthly operating expenses) 10000 considered to be "fixed."
    Average profit percentage 0.375

    $ 80.00 $ 50.00 Break-even analysis


    # Units (Average) Break-even analysis
    sold Revenue Variable cost Fixed cost Total cost $80,000
    0 $ - $ - $ 10,000 $ 10,000 $80,000

    50 $ 4,000 $ 2,500 $ 10,000 $ 12,500 $70,000


    100 $ 8,000 $ 5,000 $ 10,000 $ 15,000 $70,000
    150 $12,000 $ 7,500 $ 10,000 $ 17,500 $60,000
    200 $16,000 $ 10,000 $ 10,000 $ 20,000 $60,000

    Dollars
    250 $20,000 $ 12,500 $ 10,000 $ 22,500

    Dollars
    300 $24,000 $ 15,000 $ 10,000 $ 25,000 $50,000

    350 $28,000 $ 17,500 $ 10,000 $ 27,500 $50,000

    400 $32,000 $ 20,000 $ 10,000 $ 30,000 $40,000


    450 $36,000 $ 22,500 $ 10,000 $ 32,500 $40,000
    500 $40,000 $ 25,000 $ 10,000 $ 35,000
    $30,000
    550 $44,000 $ 27,500 $ 10,000 $ 37,500
    $30,000
    600 $48,000 $ 30,000 $ 10,000 $ 40,000
    650 $52,000 $ 32,500 $ 10,000 $ 42,500 $20,000
    700 $56,000 $ 35,000 $ 10,000 $ 45,000 $20,000
    750 $60,000 $ 37,500 $ 10,000 $ 47,500 $10,000
    800 $64,000 $ 40,000 $ 10,000 $ 50,000 $10,000
    850 $68,000 $ 42,500 $ 10,000 $ 52,500
    900 $72,000 $ 45,000 $ 10,000 $ 55,000 $-
    $- 0 100 200 300 400 500 600 700 800 900 1000
    950 $76,000 $ 47,500 $ 10,000 $ 57,500 Units
    0 100 200 300 400 500 600 700 800 900 1000
    Units
    Revenue Variable cost Fixed cost Total cost
    Revenue Variable cost Fixed cost Total cost

    Breakeven point in units sold:


    Breakeven point in units = Fixed costs/(Average selling price per unit - average variable cost per unit)
    Breakeven point in units = 10,000/(80 - 50)
    Breakeven point in units = 333.33
    1000

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