1. CVP ANALYSIS
Breakeven Point and
Target Income

2. CVP ANALYSIS
• Breakeven point (BEP) is that quantity of
output sold at which total revenues equal
total costs resulting to zero operating
income.
• USE of BEP: tells managers how much
output they have to sell to avoid a loss

3. Contribution Income Statement for Different
Quantities of Do-All Software Packages Sold
Per Number of Packages Sold
pac
kag 0 1 5 25 40
e
Revenues 200 0 200 1,000 5,000 8,000
Variable Costs 120 0 120 600 3,000 4,800
Cont. Margin 80 0 80 400 2,000 3,200
Fixed Costs 2,000 2,000 2,000 2,000 2,000
Operating (2,000) (1,920) (1,600) 0 1,200
Income

4. Breakeven Point and
Target Income
BEP (units) = Fixed costs = $2000 = 25 units
Cont margin/unit $80
BEP revenues = Fixed costs = $2000 = $5,000
Cont margin % 40%
Cont margin % = Cont margin per unit = $80 = 40%
Selling price $200

5. Target Operating Income
Quantity of units = FC + target operating income
required to be sold Cont margin per unit
Quantity of units = $2000 + $1200 = 40 units
required to be sold $80 per unit
Revenues needed = $2000 + $1200 = $3200 = $8000
To earn $1200 Cont margin 40% .40