Running a Profitable Business: Calculating Breakeven
1h 19mIntermediate2022-04-05
Authors
Jim Stice
Professor of Accounting at BYU
Kay Stice
Professor of Accounting at the BYU Marriott School of Management
Course details
Starting a business can be pricey. Breakeven analysis and cost-volume-profit analysis will help you understand when—and if—your business will start to recover those costs and begin making a profit. Understanding your breakeven point will help you to determine how much you need in revenue to keep your business going. Accounting professors Jim and Kay Stice walk through the breakeven equation, and cover types of costs, contribution margin, breakeven point, and net income. They also explain what each term means, and the importance of each, and offer examples from popular real-world companies.
Learning objectives
Explain the use of breakeven analysis by making business decisions.
Differentiate between fixed and variable costs.
Determine an appropriate business strategy given a scenario.
Describe the process of calculating contribution margins.
Apply concepts of breakeven analysis and cost-value-profit (CVP) analysis.
Review components of breakeven analysis.
Learning objectives
Explain the use of breakeven analysis by making business decisions.
Differentiate between fixed and variable costs.
Determine an appropriate business strategy given a scenario.
Describe the process of calculating contribution margins.
Apply concepts of breakeven analysis and cost-value-profit (CVP) analysis.
Review components of breakeven analysis.
Skills covered
Corporate FinanceFinance and AccountingDeep Dive (X:Y)
Concepts
Introduction
- The basics of breakeven analysis
Importance of Analysis
- Importance of breakeven analysis
- Cost-volume-profit (CVP) analysis
Types of Costs
- When variable costs become fixed costs
- Breaking down fixed and variable costs
- Fixed and variable cost examples
- Pricing a service to cover costs
Contribution Margin and the CVP Equation
- Identifying high contribution margins
- Contribution margin and profitability
- Calculate a company's breakeven point
- McDonald's breakeven point
The Breakeven Equation
- When to conduct breakeven analysis
- Breakeven equation and covering costs
- Breakeven equations for an airline
- Breakeven analysis for multiple products
Computing Target Net Income
- Importance of total contribution margin
- How to forecast a target profit
- Calculate McDonald's target profit
Sensitivity Analysis
- Analyzing a business before making changes
- What-if analysis for multiple scenarios
- Lessons for running a profitable company
Conclusion
- Risks and rewards of fixed costs