Break Even Analysis
Category: Business and Money > Finance
Asked by: blah3002-ga
List Price: $10.00
28 Nov 2006 22:44 PST
Expires: 28 Dec 2006 22:44 PST
Question ID: 786433
I'm trying to create a Break Even Analysis for a non-profit gym. They sell many "products" at tiered prices. I know the variable cost is $20 and the expense is 88000. The products have as little as one student to as many as 250. The prices are just as varied from $50 to $1000. How can I create a break even chart with this information? I understand you may not be able to provide me with the chart but a tutorial would be great. If they were a one product company I'd be able to complete this on my own. Thank you
Re: Break Even Analysis
Answered By: denco-ga on 29 Nov 2006 23:00 PST
Howdy blah3002-ga, Much thanks for accepting this as your answer. Without the actual numbers, it is difficult to give you anything other than a general "quick and dirty" approach, but here goes. Take a period of time, a year if you have those numbers, for instance, all of 2005. If you don't have a year, use the longest the period of time that you have on hand. Take the number of students across that period of time and the net income from that group. Net income is the money received less the per student variable expense. Divide the net income by the number of students. That gives you an average of per student net income per the period of time used. The fixed expense divided by the per student net income will give you the break even number of students you need for the period of time used. Here is an example of a one year estimation. Across this one year example, let's say that $60,000 gross was brought in from a total of 1,000 students with a variable annual cost of $20 a student. The fixed expense is $88,000. So, we end up with $60,000 - $20,000 for $40,000 divided by 1,000 for a net income per student of $40. $88,000 divided by $40 gives us 2,200 students needed to break even. You can then divide that out, proportionally for seasonal flucuations, if desired, across the year, say monthly or weekly, to set those kinds of goals. In our example, the gym would need around 184 students a month or or 43 students a week for break even. If you want, you can also do a breakdown of each "product" and calculate the break even per "product." In a past career, I had a company that had 5 tiers of clients and pricing and just used the "averaging" process that I outlined above, and it worked out. If you need any clarification, please feel free to ask. Search strategy: Personal experience of doing such break even calculations. Looking Forward, denco-ga - Google Answers Researcher
Re: Break Even Analysis
From: rayalaska-ga on 28 Nov 2006 23:58 PST
What I suggest is using a program that graphs like say the graphing tool on a TI series calculator or Microsoft Excel or another program you might be familiar with to create the chart. A breakeven chart would need to include 2 lines one representing the sales and the other the costs. The costs because of the fixed costs, in your case 88000 would start higher than the sales revenue which starts at 0. In other words even if you do not have sales revenue you still have to pay that 88000 according to your information provided no matter what. As a sidenote 88000 is relative on currency but 88000 sounds expensive as fixed costs in dollars unless it is on a yearly basis you are reffering to. You would have to take into effect the various prices of the products sold. I assume that you have prices for certain products. Say weightlifting $50, martial arts $200, total aerobics workout $300 and so on. The equation with explanation that you do would be 88000(fixed costs)+$22timesX(total number of packages, or your variable cost per gym package)-[Y times price 1 + z times price 2 + H times price 3 and so on]=0. The graph of the first line would be 88000+$22 times X the graph of the second one [Y times price 1 + z times price 2 + H times price 3 and so on]. Where these two meet would be your breakeven point. It all depends on how much you know about the prices and numbers of each package. You can put a lot or a little information on your graph depending on project requirements. Here are also some links to help you more. First is a link to a breakeven calculator and an explicit method on what breakeven means and a chart to how it is used. http://home.ubalt.edu/ntsbarsh/Business-stat/otherapplets/BreakEven.htm If you are more familiar with the concept then this provides a more advanced chart and a more scholarly way to do breakeven analysis plus more technical terms. http://www.businesstools.org/breakeven/breakeven.html Hope this helps.
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