The Gross Sales Volume Level

1602 Words Sep 2nd, 2016 7 Pages
It is an important analysis for us to have and understand. For any new business, we should predict what gross sales volume level we will have to achieve before we reach the break-even point and then, of course, build to make a profit. For early-stage businesses, we should be able to assess our early prediction and determine how accurate we were, and monitor whether we are actually on track to make the profits we need. Even the mature business would be wise to look at their current break-even point and perhaps find ways to lower that benchmark to increase profits. The recent massive layoffs at large corporations are directed at this goal, lowering the break-even point and increasing profits.

Break-Even Is the Volume Where All Fixed Expenses Are Covered

We will start a break-even analysis by establishing all the fixed (overhead) expenses of our business.
For the purpose of a model break-even, let’s assume that the fixed expenses look as follows:
Administrative salaries -430,000
Rent-220,000
Utilities - 80,000
Insurance- 20,000
Taxes-30,000
Telephone- 35,000
Auto expense- 20,000
Supplies- 15,000
Sales and marketing- 350,000
Interest - 20,000
Miscellaneous-100,000
Total - 1320,000

These are the expenses that must be covered by your gross profit. Assuming that the gross profit margin is 60 percent, what volume must you have to cover this expense? The answer in this case is 2,200,000 — 60 percent of that amount is 1,320,000 which is your target number.

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