How do I calculate break even point in units if all I have are the following:
1) selling price per unit (year 1988)
2) number of units sold (years 1973-1987)
3) advertising costs of $35,334,300 (year 1987)
4) advertising costs of $54,126,200 (year 1988)

I know I need a contribution per unit to calculate break even point
but in order to figure that out, I need variable costs which info is
not supplied.  I've been looking in all my accounting/finance texts to
find answer but can't find equation that does not use variable cost. 
Also what makes it more frustrating is that selling price/unit is for
1988 and number of units sold is for 1973-1987 and they don't overlap.
 Pls help, I am so frustrated, my head hurts from banging it against
the wall.  Thank you.

Hi!!

If this is a problem for a financial course and the only info you have
is the data listed by you, I think that you must assume that the
process is some kind of fully automated process or a service that has
not variable and/or additional fixed costs, or they are negligible
compared with the advertising costs (a fixed cost). Since many
problems are based on hypothetical assumptions you could think for
example in a guru for Hollywood stars who attends at client's home, he
needs a lot for advertising and his other costs (taxi, limos, and also
the receptionist salary!!) are negligible. In general this is true for
many services, where the variable cost per unit is usually zero or
negligible.

On this assumption you have:
Total fixed costs 1988 = Advertising Costs = $54,126,200
Variable cost per unit = $0

You know that:
Break-even = Fixed Costs / Contribution margin per unit 

where:
Contribution margin per unit = (Revenues - Variable Costs) / Units sold =

Here you still need the number of units sold for 1988, but note that:
Revenues / Units sold = Price per unit
and
Variable Costs /Units sold = Variable Cost per Unit

Then:
Contribution margin per unit = Contribution margin per unit = -
Variable Cost per Unit

In this case (with negligible or zero variable costs) we have that:
Contribution margin per unit = Price per unit

Then:
Break-even = Total Fixed Costs / Price per unit

And now you do not need the number of units sold for 1988.

See for Contribution margin reference the following slides:
"COST-VOLUME-PROFIT ANALYSIS AND THE CONTRIBUTION MARGIN APPROACH TO
DECISION MAKING":
http://www.bus.duq.edu/faculty/bodnar/cvp/sld001.htm


Regarding the provided number of units sold for years 1973-1987, I
guess that this data could be used to forecast the number of units
sold for 1988, for example using a moving average forecasting model.


I hope that this provide you enough info to solve this problem. This
answer is not considered ended until you feel satisfied with it, so if
you find something unclear or need further assistance on this feel
free to request for a clarification. I will gladly respond your
requests.

Regards.
livioflores-ga

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Clarification of Answer by livioflores-ga on 12 Mar 2005 16:07 PST

OOps!! excuse me the typo:

Replace the following:
"Revenues / Units sold = Price per unit
and
Variable Costs /Units sold = Variable Cost per Unit

Then:
Contribution margin per unit = Contribution margin per unit = -
Variable Cost per Unit"

by this:
"Revenues / Units sold = Price per unit
and
Variable Costs /Units sold = Variable Cost per Unit

Then:
Contribution margin per unit = PRICE PER UNIT - Variable Cost per Unit"

Thank you.