Break-Even Point and Targeted Profit
Since break-even focuses on making zero profit, is it of value in determining how many units must be sold to make a targeted profit? if so, what is it. I'm struggling to understand this. Examples would be great as references.
Also, how can a change in the sales mix change the break-even point?
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Solution Preview
Break-even point (BEP) occurs where Total Revenue (TR) equals Total Cost (TC).
Every firm has Variable Cost (VC) and Fixed Cost (FC). FC do not depend on sales or ouput whilst VC does depend on output and/or sales.
Total Cost (TC) is the sum of Variable Cost (VC) and Fixed Cost (FC).
Mathematically:
TC = VC + FC
The Total Revenue (TR) is determined by the amount of products produced and the price charged per product.
If the firm produces two products, Total Revenue would look like:
TR = (Q1 x P1) + (Q2 x P2)
Where:
Q1: Quantity produced/sold for product 1
Q2: Quantity produced/sold for product ...
Solution Summary
The expert examines break-even points and target profits.