why we need to know the difference between a variable cost and a fixed cost
Download
Skip this Video
Download Presentation
Why WE need to know the difference between a variable cost and a fixed cost

Loading in 2 Seconds...

play fullscreen
1 / 10

Why WE need to know the difference between a variable cost and a fixed cost - PowerPoint PPT Presentation


  • 102 Views
  • Uploaded on

Why WE need to know the difference between a variable cost and a fixed cost. Ted Mitchell. To Calculate a Breakeven Quantity, BEQ. Breakeven Quantity, BEQ = (Fixed Cost, F ) /(Marginal Profit per Unit) BEQ = F /( Price Tag, P – Variable cost, V ) BEQ = F/(P-V)

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Why WE need to know the difference between a variable cost and a fixed cost' - debra


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
to calculate a breakeven quantity beq
To Calculate a Breakeven Quantity, BEQ
  • Breakeven Quantity, BEQ = (Fixed Cost, F) /(Marginal Profit per Unit)
  • BEQ = F/(Price Tag, P – Variable cost, V)
  • BEQ = F/(P-V)
  • Remember it is NOT (Price tag – the average cost per unit)
  • Price tag is the marginal revenue, P, want to use the marginal cost, V, to establish the marginal profit per unit sold
you need to know
You need to know
  • 1) What is the marginal profit per unit sold?
  • Price Tag, P – Variable Cost, V
  • Marginal Profit Per unit = P-V
  • 2) The marginal cost is the Same as the Average Cost Per Unit (Unit Cost)
  • Average Cost per Unit =
  • (Total Variable Cost, COGS + Total Fixed Cost, F)/ Quantity sold, Q
  • Average Cost per Unit = (COGS +F)/Q
what are 3 ways to set a selling price
What are 3 Ways to set a selling price?
  • The three C’s of Pricing
  • 1) Cost Based Based
  • 2) Competitor Based
  • 3) Customer (Demand) Based
  • To know Cost Based Approached you must know the difference between variable cost, V, an average cost and a Fixed Cost, F
you need to be able to calculate
You need to be able to calculate
  • a ratio called the Markup on Selling Price, Mp
  • Markup on Price, Mp = (Price, Tag, P – Variable Cost, V)/Price Tag, P)
  • Mp = (P-V)/P
  • Remember it is the variable cost, V, not the average cost per unit
  • Cost Based Pricing FormulaPrice Tag, P = (Variable cost, V)/(1 – Mp)
  • P = V/(1-Mp)
example
Example
  • If you purchase a wagon to be sold in your store with a markup on the selling price of Mp = 60% and it cost you V = $200
  • What is the selling price the customer must pay?
  • Answer? Mp= (P-V)/P
  • P = V/(1-Mp)
  • P = $200/0.40) = $500
you need to define identify and work with
You need to define, identify, and work with
  • Fixed cost, Variable Cost, average cost per unit
  • Breakeven Quantity
  • Markup on Selling Price
  • Any questions?
ad