【A.05.02】How many sales (in dollars) 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 dollars..

✅ ..the amount of revenue a business needs to generate in order to cover all its costs and expenses and neither make a profit nor suffer a loss (NO profit NO loss).


This is also known as..

✅ ..the “cost-volume-profit (CVP) analysis” which is used to help businesses determine their sustainability and profitability at different levels of sales volume (quantity).


The formula for calculating the breakeven point in dollars..

✅ ..as follows:

✅ ..In the formula:

🚩 Total fixed costs are the costs that do not change with the level of sales, such as rent, salaries, insurance, etc.


🚩 Total variable costs are the costs that vary with the level of sales, such as raw materials, labour costs, etc.

🚩 Total sales are the total revenue (sales income) generated by the business.


To calculate the breakeven point in dollars..

1️⃣ ..first need to calculate the contribution margin, which is the difference between the sales price of the product or service and its variable cost per unit.

2️⃣ ..the contribution margin per unit is then multiplied by the number of units sold to arrive at the total contribution margin.

3️⃣ ..this contribution margin, either on a “per unit” basis or “total” basis, is then applied in the formula above to identify the breakeven point in dollars.


Once the breakeven point in dollars is determined..

✅ ..a business can make use of this information to formulate strategies on pricing, production levels, and sales targets to ensure its sustainability and profitability.


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