Boots for Troops is a charitable organization that sends packages to US troops. As such, it is not profit-motivated. The financial objective is to have a surplus as opposed to a deficit (Tracy, 2012). The break-even point, therefore, is the point at which the expenditure will equal revenue (Caffekry & Jon, 2010). The following is the calculated break-even analysis of values from the income statement, January to December 2018. The assumption made is that the revenue received is priced as units of donor packages valued at $50 each. The break even analysis, therefore, determines the number of packages needed for the revenue to equal expenses and costs.
Break Even Quantity = (Total Fixed Costs – Contributed Income) / (Price – Variable Costs)
= (53,669.92 - 214,124.20) / (50 – 98.69)
= (-160,454.28) / (-48.69)
= 3,295.42
Rounded up = 3,296 packages
Increase your cost by 10% and re-calculate your break-even analysis
Break Even Quantity = (Total Fixed Costs – Contributed Income) / (Price – Variable Costs)
= [(53,669.92*1.10) – 214,124.20] / [50 – (98.69*1.10)]
= (59036.91 - 214,124.20) / (50 – 108.56)
= (-155087.29) / (-58.56)
= 2,648.35
Rounded up = 2,649 packages
Increase your cost another 10% and re-calculate your break-even analysis
Break Even Quantity = (Total Fixed Costs – Contributed Income) / (Price – Variable Costs)
= [ (59036.91*1.10) - 214,124.20] / [50 – (108.56*1.10)]
= (64940.60 – 214124.20) / (50 – 119.42)
= (-149183.60 / -64.42)
= 2149.12
Rounded up = 2,150 packages
Decrease your expenses by 10% and recalculate your break-even analysis
Break Even Quantity = (Total Fixed Costs – Contributed Income) / (Price – Variable Costs)
= [(53,669.92*0.8) - 214,124.20] / [50 – (98.69*0.8]
= (42935.94 -214124.2) / (50 – 78.95)
= (-171188.26) / (-28.95)
= 5912.83
Rounded up = 5,913 packages
Decrease your expenses another 10% and re-calculate your break-even analysis
Break Even Quantity = (Total Fixed Costs – Contributed Income) / (Price – Variable Costs)
= [(42935.94 * 0.8) -214124.2] / [50 – (78.95 * 0.8)]
= (34348.75 – 214124.20) / (50 – 63.16)
= (-179775.45) / (-13.16)
= 13,660.75
Rounded up = 13,661 packages
The increase in costs would influence how the business is received by its donors. These customers will be required to pay slightly more. However, more people will be buying. The business is a charity non-profit organization, and appealing to more people translates to increased revenue.
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Decreasing expenses increases the number of packages required for the business to break even. Further 10% increase raises the number of packages required to be sold. In this business, decreasing expenses is, therefore, not feasible. The scenario could be explained by the reason that reducing expenses develops bottlenecks and limits the ability of the business to reach potential customers.
From the above calculations of the packages necessary for the business to break even, the scenario that gets to this goal sooner is the one that the cost by 10%. In this case, the business requires to sell 2,150 donor packages from 3,296 in the initial scenario. The increase in costs increases revenue. This could be attributed to factors such as increased advertising and the availability of more merchandise to be auctioned in fund raisers.
References
Caffekry, M. & Jon, W. (2010). Break Even Analysis. Business Expert Press
Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. CreateSpace Independent Publishing Platform
