Accounting Business Reporting for Decision Making

CHAPTER 10 Cost–volume–profit analysis 425

Break-even analysis for a single product or service

The break-even analysis for a single product is detailed in illustrative example 10.1.

ILLUSTRATIVE EXAMPLE 10.1

Break-even analysis for a single product

Nicholas Cash, the owner of Advantage Tennis Coaching (ATC), is planning to take a squad of junior

players who have reached qualifying standards to the National Tennis Australia Junior Champion-

ships. The tournament will be held at the Gold Coast in Queensland. Players will be transported to

the tournament in a bus (48 seat capacity) from Brisbane and ATC will engage an additional coach

to support the athletes during the tournament. In recognition of achieving squad selection criteria,

ATC will award each player a kit bag embossed with the event and their name. Lunches will be

provided.

Participation charge (parents to pay)

Nomination fees

Embossed kit bag

Lunches and sports drinks

Support coach

Bus hire from Brisbane to Gold Cost

$ $ $ $ $ $

150

25

35

30

1 200

600

per player

per player

per player

per player

for the event

for the event

The break-even calculation (in units or players) can be expressed as:

Fixed costs $

= x break-even (units or players)

Contribution margin per unit (or player) $

where the contribution margin (per unit or player) is equal to the selling price (participation charge) per

player less variable costs per player.

So, for ATC, the contribution margin per player would be equal to:

Selling price (participation charge) per player

Variable costs per unit (or player):

Nomination fees

Embossed kit bag

Lunches and drinks

$25

35

30

$150

90

Contribution margin per unit $ 60

The break-even point for ATC in numbers of players attending the championship is:

Break-even for ATC =

Fixed costs

Contribution margin per unit

=

$(1200 + 600)

$60

=

$1800

$60

= 30 players

CVP analysis may also be viewed in graphical form as shown in figure 10.4.