MBA 7025 Statistical Business Analysis Breakeven Analysis Jan

MBA 7025 Statistical Business Analysis Breakeven Analysis Jan 20, 2015 Georgia State University - Confidential MBA 7025_02. ppt/Jan 20, 2015/Page 1

Breakeven • Sales – Costs = Profit • B/E is the point at which you are not making or losing $ • Must Account for Fixed and Variable costs • Example: Suppose we own a hotel, and our rooms rent for $50 per night. Our total fixed costs are $1, 000 and out Variable costs are $10 per room. What is the break-even? Georgia State University - Confidential MBA 7025_02. ppt/Jan 20, 2015/Page 2

Breakeven • Define the random variable X. • Express Total Revenue, Fixed cost, Variable cost, Total cost, and Profit in terms of X. • Calculate Breakeven point. • Draw two graphs - one of Revenue and Total Cost against the number of rooms, the other of profit against the number of rooms. Georgia State University - Confidential MBA 7025_02. ppt/Jan 20, 2015/Page 3

Crossover • Determining the point where two alternatives yield equal results • You have the option of subcontracting to improve room quality. Fixed Costs would increase to $1800, with no change to variable costs. You will, however, be able to charge $70 per room per day. At what point will you be indifferent between your current mode of operation and the new option? • Solution: Set the profit equations equal to each other Georgia State University - Confidential MBA 7025_02. ppt/Jan 20, 2015/Page 4