BUS 535: What Is Break-Even Analysis and How to Calculate It

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Milano Co
Yangisha K.C
Westcliff University
BUS 535: Managerial Accounting
Professor. Ajay Shah
July 24,2022

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Abstract
This paper addresses break-even analysis, its significance, and the advantages it may
provide a business. In order to address it, the Break Even Point for Milano Co, the firm
mentioned in the question, is calculated. In the second step, several adjustments are made to the
materials and fixed costs that provide a useful perspective. After the calculation, different
conclusion is drawn, which can be quite insightful for Business Risk Analysis and Decision
Making.
Keywords: Break Even Analysis, Contribution Margin, Unit Selling Price, Sales Mix Ratio.

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Milano Co
Break Even Point is a point in which a business is in neither loss or in profit.
(Singh,1982). In other words, Break Even is a state where business incur the cost that has been
invested in it. It is essential because it helps in making a business strategy and analyze which
particular product is better performing. (Abdullahi,2017)
For example, a company sells two different kinds of beverage. Doing Break Even
Analysis can help to calculate which particular beverage is more profitable, whether it is good
idea to keep selling this beverage for next few months or not and so on. Also, breakeven analysis
can be useful for stakeholders to make different kind of investment decision. (Wild, 2018).
As given in the question, 3 different products are given. The question can be visualized
using the table below:
Product 1 Product 2 Product 3
Unit Selling Prices $40 $30 $20
Per unit variable costs $30 $15 $8
Sales Mix Ratio 6 4 2
Fixed Costs $270,000
Milano Co.
As we can see that certain changes in the per unit variable cost and fixed costs is made
which can be demonstrated by table below.
Per unit variable costs after
new material $20 $10 $8
Fixed Costs $270000+$50,000=$320000
Now in order to calculate the Break Even Point before new material is added, we will
first calculate the sales mix for three products.