# Break-Even Analysis and Others

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## Purpose

Additional Sale above Break-Even Point will generate profits, then one additional unit of sale will generate (Revenue - Variable Cost) profit

• Determine what level of sales are needed to cover total fixed costs
• Give insight of selling capabilities
• Calculate the level of production or in a targeted desired sales mix

A company with lower fixed costs will have a lower break-even point of sale generally

Break-even analysis looks at the level of fixed costs relative to the profit earned by each additional unit produced and sold.

### Variable Cost

The accumulation of variable costs will limit the leverage of the company as these expenses are incurred for each item sold

### Contribution Margin

• Definition: the excess between the selling price of the good and total variable costs.
• Function: price - variable cost
• Reflecting the amount of revenue collected to cover fixed costs and be retained as net profit

### Contribution Margin Ratio

• Definition: the contribution margin per unit divided by the sale price
• 边际收益率是指每增加一单位的资本投资，预期将来可获得的收益R，资产使用成本（这里用U表示）指一定时期内使用单位资本的预期真实成本，企业依据R=U确定资产的存量规模
• Reflect the leverage relation between price and sale
• 体现了公司的市场竞争能力。如果竞争对手相信它的边际收益率要高出很多，那么由于上文所述销量一收益间杠杆关系，竞争对手很有可能实施打折战略以推动销量增长。另一方面，确信自己的边际收益率与竞争对手相当或者更高，你将在市场竞争中更有信心，因为你有能力反击那些试图通过打折来争夺市场份额的竞争对手的投机行为。
• 通过边际收益率可以判断公司是否能使用细分定价来服务并开发众多的细分市场细分定价意味着对不同细分市场——各细分市场的服务成本和价格敏感度水平有很大差别——制定不同的价格
• 对于一种具体产品而言，边际收益率越大，你就越能够灵活地对某些细分市场制定较高价格，同时对其他细分市场制定较低价格；这样，公司不仅能够服务于愿意支付溢价的客户，而且能服务于那些对价格敏感、只愿支付较低价格的客户。很多公司都会战略性地设计成本结构，以保持低水平的可变成本并实现高水平的边际收益率，从而使自己能够顺利进入价格敏感度水平不同的各个细分市场。进入细分市场的时候，它们会投入大量固定成本，通过广告、促销活动、打折宣传和密集的分销系统来推动销量的提高。

## How to Check

### Way1

Total Fixed Cost/Contribution Margin = Units for Sale at Break-even Point

Definition: upon the sale of xxx units, all fixed costs will be paid for, and the company will report a net profit or loss of \$0

### Way2

Total Fixed Cost/Contribution Margin Ratio = Units for Sale at Break-even Point

## Reference

• Break-even Analysis from Investopedia: https://www.investopedia.com/terms/b/breakevenanalysis.asp
• marginal income ratio from MBAlib: https://wiki.mbalib.com/wiki/Contribution_Margin_Ratio