Math in the Workplace: Overview

Math in the Workplace - Algebra

Problem:

Businesses generally incur two types of expenses: fixed and variable. Fixed expenses are those that do not change with the amount of business. For example, in our business we have certain costs such as rent, electricity, and some employee wages (customer service representatives and billing clerks) that do not change whether we make one sale or one hundred sales. Variable costs, however, increase directly with the amount of sales. In our business, these costs would include items such as raw products, packaging materials (bags and boxes), and the wages of employees that produce the items.

Each time we introduce a new product, we estimate how many cases per month we must sell in order to pay for the fixed costs of the operation and begin to make a profit. This estimate is called a Break-Even Analysis and is the point where total sales revenue equals total (fixed and variable) costs. The difference between the Selling Price per case and the Variable Costs per case is called the Contribution Margin.

Determine the number of cases that must be sold to reach the break even point.

The following information is available to solve the problem:

Selling price per case (P)	$8.95
Variable cost per case (V)	$6.45
Fixed Costs per month (F)	$24,000.00
Quantity of cases (Q)	?
Break even Quantity (QBE)	QBE =	F P-V

Solution:

The breakeven point is reached when costs equals profits.

So F + V • Q = P • Q

$24,000.00 + 6.45 • Q = 8.95 • Q

So QBE =	F P-V
QBE =	$24,000.00 $8.95 - $6.45	= 9,600 cases

Math in the Workplace: Overview