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, your First Year Forecasted Cash Flow Statement (step 2), your First Year Forecasted Income Statement (step 3), your First Year Forecasted Balance Sheet (step 4), and your First Year Forecasted Ratios (step 5), the next step is to develop your First Year Forecasted Break-even Point (remember to create your forecasted financial statements and analysis one year at a time).Recall from previous discussions, a Break-even Analysis, in its simplest form, is a tool used to determine the level of sales a business must earn in order to achieve neither a profit nor a loss.
A manufacturer, on the other hand, would use Budget 1 entitled "Determining Your Selling Price and Product Cost (per unit)", Budget 4 entitled "Developing Your Direct Manufacturing Labor Budget", and Budget 5 entitled, "Developing Your Manufacturing Factory Overhead Budget" in order to determine its Total Product Cost per unit OR its Weighted Average Product Cost.
Recall from our example, Murray's total cost to purchase each diskette (unit) and have it shipped to his place of business (IE Total Product Cost per Unit) is expected to be $3.00 in 200X and $3.30 in 200Y.
You should also consider whether your products will be successful in the market.
Just because the break-even analysis determines the number of products you need to sell, there’s no guarantee that they will sell.
Fixed Costs are costs or expenses that do NOT fluctuate with production or sales.
Most companies consider each Operating Expense a Fixed Cost (IE all marketing & administrative expenses are considered fixed costs).
Your Selling Price per unit is the price you plan to sell your product for.
If you plan to sell more than one type of product, you will be required to determined a Weighted Average Selling Price.
Unlike, the selling price and the variable cost, the break-even formula does NOT require Fixed Costs to be calculated on a per unit basis.
Therefore, in most cases, companies can simply refer back to Budget 9 entitled "Developing Your Operating Expense Budget" for their Fixed Costs.