Forecasted Break-Even Analysis Example for J&B Inc

J&B INCORPORATED
FORECASTED BREAK-EVEN ANALYSIS
FOR YEARS...

REQUIRED INFORMATION:
CONTRIBUTION MARGIN: YEAR 1 YEAR 2 YEAR 3
Selling Price per unit (note 1) $73.89 $68.01 $67.61
Weighted Average Variable Cost per unit $16.50 $14.79 $12.10
CONTRIBUTION MARGIN PER UNIT $57.39 $53.22 $55.51
FIXED COSTS PER YEAR:
Advertising Expense (note 3) $130,000 $150,000 $170,000
Wages & Employee Benefits (note 4) $122,366 $136,153 $167,421
Casual Labor (note 5) $ 2,400 $ 3,000 $ 3,600
Office Supplies (note 6) $ 1,500 $ 1,715 $ 1,908
Rent Expense (note 7) $ 12,000 $ 12,600 $ 13,230
Telephone/Fax Expense (note 8) $ 3,600 $ 3,840 $ 4,080
Professional Services (note 9) $ 7,000 $ 3,500 $ 4,000
Insurance Expenses (note 10) $ 1,500 $ 1,650 $ 1,815
Toll-free Charges above Variable Cost (note 11) $ 15,685 $ 20,706 $ 25,408
Bad Debt Expense (note 12) $ 5,824 $ 6,738 $ 7,844
Interest on Operating Loan (note 13) $ 2,000 $ nil $ nil
Internet Storage & Accounts  (note 14) $ 2,550 $ 2,700 $ 2,865
Miscellaneous Expenses (note 15) $ 2,400 $ 2,600 $ 2,800
Depreciation Expense - Equipment (note 16) $ 3,142 $ 4,392 $ 6,392
Depreciation Expense- Furniture (note 17) $ 606 $ 906 $ 1,306
Amortization of Initial Development Costs (note 18) $ 15,924 $ 15,924 $ 15,924
Amortization of Future Development Costs (note 19) $ 24,720 $ 55,215 $ 86,575
TOTAL OPERATING/FIXED COSTS $353,218 $421,638 $515,168

Note: all J&B's Operating Expenses are considered to Fixed Costs!

J&B INCORPORATED
BREAK-EVEN CALCULATION (IN UNITS):
FOR YEARS 1, 2, 3
Year 1 Year 2 Year 3
Fixed Costs divided by Contribution Margin = 6,155 units 7,923 units 9,281 units
Forecasted Sales in units per year = 7,882 units 9,907 units 11,602 units
Forecasted Sales above Break-even = 1,727 units 1,984 units 2,321 units


J&B is forecasting sales of 1,727 units above its break-even point in year one, 1,984 units above break-even in year two and 2,321 units above break-even in year three.

 

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