【A.05.01】How many sales (in quantity) are required to survive a business in the short run?
Briefing Note
Reading comprehension is a skill that empowers lifelong learning intelligence for a better self.
The breakeven point in quantity..
✅ ..refers to the point at which a business or a product has generated adequate revenue to cover all of its costs, and its profits are equal to zero i.e. NO profit NO loss.
✅ ..the level of sales volume at which the total revenue earned is equal to the total costs incurred, resulting in zero profit and zero loss, which is also known as the breakeven level.
The formula for the breakeven point in quantity..
Where:
🚩 Total fixed costs (TFC)
These are the expenses that do not vary with the level of production, such as rent, salaries, insurance, and depreciation.
🚩 Unit sales price
This is the selling price of the product per unit.
🚩 Unit variable costs
These are the costs that vary with the level of production, such as direct materials, direct labour, and variable overhead costs.
🚩 Contribution per unit
Contribution per unit ($) = sales price per unit ($) – variable costs per unit ($)
✅ ..a business can determine the amount of sales volume (quantity) it needs to achieve in order to cover its costs and just good enough to break even and sustain i.e. neither earn a profit nor incur a loss.
Once the breakeven point in quantity is achieved..
✅ ..any additional units sold will generate a profit for the business.
Here is the video for dynamic comprehension..
Here is the briefing note for reading comprehension..