When expenses and revenues are equal, this is known as the “break-even point” or BEP. To determine break-even, an examination of fixed and variable costs (expenses) in relationship to revenues is necessary.

Willow Smithe is planning to make a unique toy that promises to keep small children entertained for hours! Willow believes that parents everywhere will want to buy this toy. With a selling price of $35, Willow now needs to determine the costs and the required number of toys needed to be sold before earning a profit, the break-even point.

After researching the costs to produce the toy, the following two locations with associated costs have been determined:

The rent for the small facility will be $3,02,400 per month, insurance $1,000 per month, and other fixed costs are estimated at $2,000 per month. This facility has a capacity to produce 150 toys per month at a variable cost for each toy of $5.00.

The rent for a larger facility will be $3,500 per month, insurance $1,600 per month, and other fixed costs are estimated at $2,400 per month. This facility has a capacity to produce 300 toys per month at a variable cost for each toy of $5.00.

Media below helps out

http://mym.cdn.laureate-media.com/2dett4d/Walden/WMBA/6050/06/mm/break_even/index.html