Suppose your company has the following costs:
FIXED: (Add up USAIIRDO)
Rent - $400 / month
Salary - $300 / month
Utilities - $100 / month
TOTAL FIXED - $800 / month
Utilities - $100 / month
TOTAL FIXED - $800 / month
VARIABLE: Cost of Goods Sold (COGS)
Materials Cost - $30 / unit
Direct Labor to Manufacture - $10 / unit
Materials Cost - $30 / unit
Direct Labor to Manufacture - $10 / unit
TOTAL VARIABLE - $40 / unit
Suppose we set our sales price price at $60, How many units do we need to sell to break even every month?
1.) First, we need to find our gross profit per unit:
Sales Price / Revenue - $60 / unit
less Total Variable Cost - $40 / unit
Gross Profit - $20 / unit
2.) Second, we need to find the Break Even:
BREAK EVEN =
TOTAL FIXED COST
GROSS PROFIT PER UNIT
in this case:
$800
$20
= 40 units / month
Now, how would the Break Even change if we set the price at $80?
Now, suppose we set the price at $35? Is there any time when a company would want to set their price lower than the TOTAL VARIABLE COST?
SOURCE: http://www.investopedia.com/terms/i/incomestatement.asp
What Does Income Statement Mean?
A financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.
Also known as the "profit and loss statement" or "statement of revenue and expense".
Investopedia explains Income Statement
The income statement is the one of the three major financial statements. The other two are the balance sheet and the statement of cash flows. The income statement is divided into two parts: the operating and non-operating sections.
The portion of the income statement that deals with operating items is interesting to investors and analysts alike because this section discloses information about revenues and expenses that are a direct result of the regular business operations. For example, if a business creates sports equipment, then the operating items section would talk about the revenues and expenses involved with the production of sports equipment.
The non-operating items section discloses revenue and expense information about activities that are not tied directly to a company's regular operations. For example, if the sport equipment company sold a factory and some old plant equipment, then this information would be in the non-operating items section.
SAMPLE INCOME STATEMENT
SOURCE: http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_1578
CLICK HERE TO Learn how to read the Income Statement:
