Break even point

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2. BY: ASSOCIATE PROFESSOR NADEEM UDDIN
Linear function:
A linear function involving one independent variable x and a dependent variable y
has the general form
f(x) = y = ax + b
Where a and b are constants, a ≠ 0
A linear function always represents a straight line.
Linear Cost function:
C(x) = Total variable cost + Total fixed cost
Linear Revenue function:
R(x) = Total revenue = ( price )( quantity sold )
Linear Profit function:
P(x) = Profit = Total revenue – Total cost
Break Even Point:
When total revenue equal to total cost that is
R(x) = C(x)
Solve the above equation for x where x is the break even level of output.Which
shows there is no profit, no loss.

3. Example-21
A company produce calculator and estimate that variable cost per unit including
materials, labour and marketing cost is Rs.225, where the fixed cost is Rs.25,00000
the company estimate that the selling price will be Rs.350 per calculator.Determine
the number of calculator which must be sold in order for the firm to break even.
Solution:
R(x) = 350𝑋
C(x) = 225 𝑋 + 2500000
Apply Break even condition
R(x) = C(x)
350𝑋 = 225 𝑋 + 2500000
350𝑋 - 225 𝑋 = 2500000
125 𝑋 = 2500000
𝑋 =
2500000
125
𝑋 = 20000
Conclusion:
(a) The company must sell 20000 calculators in order to break even
(no profit no loss)
(b)If company sell more than 20000 calculators there will be profit.
(c) If company sell less than 20000 calculators there will be loss.
DO YOURSELF
A firm sell a product for Rs 450 per uit.Variable cost per unit is Rs.330 and fixed
cost is Rs.450000,how many units must be sold in order to break even and make a
profit. (x = 3750 and for profit x > 3750 )