Break Even Analysis

A simple break even analysis asks the question: How many books do you have to sell in order to make back your initial investment, otherwise known as breaking even. We make this calculation by looking at the total income, or gross sales, and equating it to the sum of the fixed costs, variable costs and profit from the items. Breaking even means that you go from negative profit to positive profit and the actual point where that transition occurs is when profit is equal to zero.

Gross Sales = Price per Unit * # of Units Sold

Fixed Costs do not change

Variable Costs = Cost per Unit * # of Units sold

Gross Sales = Fixed Costs + Variable Costs

P*X = FC + V*X + Profit; Profit = 0

P*X = FC + V*X

P*X V*X = FC

X(P-V) = FC

X = FC/(P-V)

So the way to calculate the total number of units needed to break even, X, which is calculated by FC/(P-V).

Provide a one page presentation for each of the two parts below. Include 2-3 paragraphs explaining your logic/process, some of the calculations from excel and graphs if appropriate.

Book Publishing

You are the owner of a publishing firm and you have a new author that you plan to publish. You believe that the author will be successful, but it is her first book and you dont really know what the sales numbers will look like. As such, you want to do a break even analysis to find out how many books you have to sell in order to get back your initial investment.

The book will be published in paperback sized 6x9. The initial set up cost for setting up the press for the book is $300 dollars. After the additional cost for setting up the press, each book will cost $2.19 each to make.

How much will it cost to print _ books?

100 books

200 books

500 books

1000 books

2000 books

What is the cost per book for each quantity?

If the book retails at 9.99, How many books do you need to sell in order to break even?

10.99

11.99

12.99