Break even calculation

break-even analysis McBurger
New answer on Sep 09, 2020
2 Answers
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Anonymous A asked on Sep 06, 2020

Hello,

Can someone help me understand how this case calculated breakeven (BE)? How is this derived : highest price the company is willing to pay for the dispenser (the breakeven point)?

Maximum price at the breakeven point:

Costs of using new dispensers = Costs of using old dispensers.

I ususally use the formule BE = Total fixed costs / (price per unit-variable costs per unit) but often this information is not given and you need to derive BE by other means.

Many thanks

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Luca
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replied on Sep 07, 2020
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello,

Your formula is the right one to calculate the "break even volume", the volume that would cover your fixed costs.
Anyway the break even calculation is a broader concept and you can think of it as of the minimum price/volume/cost that makes your investment not inconvenient (usually considering profit equals to 0).
In the case you mentioned, you have two alternatives for the napkins dispenser and the question that you should answer is "What is the price that makes the new system as expensive as the old one?".
That's why you see the formula:

Costs of using new dispensers = Costs of using old dispensers


The result is that if new dispenser cost is 215$, your costs will be the same. From this you can infer that a lower cost would make the new system attractive, an higher cost would make this inconvenient.

Feel free to text me for further discussion, breakeven point is one of the most important concept for your interviews.

Hope it helps,
Luca

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Clara
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replied on Sep 09, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello,

As you can see, the

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Luca

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