# Break-Even Analysis

a Breakeven = Fixed Cost / (Selling Price - Variable Cost)
Breakeven = \$80,000 / (\$10 - \$0.10 x 50)
Breakeven = \$80,000 / \$5
Breakeven = 16,000 bags

b @ 12,000
Sales   120 000
Variable Cost     60 000
Contribution Margin     60 000
Fixed Cost     80 000
EBIT   (20 000)

c DOL (20,000) = [Quantity x (Selling Price - Variable Cost)] /   [Quantity x (Selling Price - Variable Cost) - Fixed Cost]
DOL (20,000) = [20,000 x (\$10 - \$5)] / [20,000 x (\$10 - \$5) - \$80,000]
DOL (20,000) = \$100,000 / \$20,000
DOL = 5.0 times

DOL (25,000) = [Quantity x (Selling Price - Variable Cost)] /   [Quantity x (Selling Price - Variable Cost) - Fixed Cost]
DOL (25,000) = [25,000 x (\$10 - \$5)] / [25,000 x (\$10 - \$5) - \$80,000]
DOL (25,000) = \$125,000 / \$45,000
DOL = 2.78 times

The DOL decreases as the quantity sold increases because firm is now operating at a larger profit.

d @ 20,000
Sales   200 000
Variable Cost   100 000
Contribution Margin   100 000
Fixed Cost     80 000
EBIT     20 000

DFL (20,000) =EBIT / (EBIT - Interest)
DFL (20,000) = \$20,000 / (\$20,000 - \$10,000)
DFL (20,000) = \$20,000 / \$10,000
DFL (20,000) = 2.0 times

DFL (25,000) =EBIT / (EBIT - Interest)
DFL (25,000) = \$45,000 / (\$45,000 - \$10,000)
DFL (25,000) = \$45,000 / \$35,000
DFL (25,000) = 1.29 times

e DCL (20,000) = DOL x DFL
DCL (20,000) = 5.0 x 2.0
DCL (20,000) = 10.0 times

DCL (25,000) = DOL x DFL
DCL (25,000) = 2.79 x 1.29
DCL (25,000) = 3.57 times**