Break-even analysis determines the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Expense forecasts are mostly for staff required to do the marketing activities such as advertisements, web site developments, providing printed materials.
4.1 Break-Even Analysis
The break-even analysis for iLoveMyWater shows that $6,928 will be required in monthly sales revenue or 347 units (Table 4.1) to reach the break-even point where profits equal zero.
TABLE 4.1Break-Even Analysis
Break - Even Analysis Parameters
Monthly Units Break-Even 347 units
Monthly Sales Break-Even $6,927.59
Per Unit Average Revenue $19.99
Per Unit Variable Cost $3.60
Estimated Monthly Fixed Cost $5,680.00
We computed these break-even parameters based on assumptions on variable costs, fixed costs (Table 4.1) and used the following formula:
Price x Units – Variable Cost x Units – Fixed costs = Profit; or
$19.99 x Units - $3.60 x Units – $5,680 = 0; or Units = 347.
We also showed graphically (table 4.2) how many units are required to sell in order to cover total costs and how profits change with amounts of sold units. The area on the right after the break-even point is the profit area, whereas the area on the left before the break-even point is the loss area.
TABLE 4.2 Break-Even Analysis
Volume Fixed Costs Variable Costs Tot...
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...ether with a team of local and international sales representatives, iLoveMyWater is able to bring to the market their unique products that provide an experience that other companies’ products do not.
Elena Trusova oversees the general management, including product development, of iLoveMyWater. Prior to joining the company, she was Vice President of Public Relations at a major healthcare company.
Maria Akopjan, VP Marketing, is responsible for all areas of marketing. Maria’s prior experience includes developing the key marketing plan that launched several marketing campaigns for a healthcare company.
Georgii Giorgadze, VP Sales, is responsible for the control and management of all sales and business development operations, pricing, compensation, and distribution strategy. Georgii will improve iLoveMyWater’s achievement of its customer acquisition and revenue goals.
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