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hey smart people - break even analysis?

Discussion in 'Off-Topic Discussion' started by smslavin, Nov 8, 2018 at 2:46 PM.

  1. Nov 8, 2018 at 2:46 PM
    #1
    smslavin

    smslavin [OP] On a plane...

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    need some input from people smarter than i. trying to work out some numbers for a break even analysis but i'm struggling. given this equation...

    revenue per unit - variable expenses per unit = contribution margin per unit

    i know how to work it out for a single product but, what if i have multiple products and each product has it's own set of variable expenses? do i calculate one for each product? if yes, how does that go into this equation...

    fixed expenses per day ÷ contribution margin per unit = break-even point in units per day

    would i wind up with multiple break even points? if so, how do i reconcile them?

    once i have the break even point, i can put that into dollars.

    now, building on that, how do you build a cash flow projection where your unit sales are variable each month?
     
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  2. Nov 8, 2018 at 2:48 PM
    #2
    T-Rex266

    T-Rex266 T-Rex Staff Member

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    My head hurts
     
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  3. Nov 8, 2018 at 2:56 PM
    #3
    COMiamiFan

    COMiamiFan Now you know something

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    Depends what the variable expenses are. For example, in our warehouse, we allocate variable expenses by item/customer based on the number of touches, labels, size and volume that moves thru the building. I built a microsoft access database that allocates the costs based on these variables. Once you are down to the lowest denominator, you can roll it up and calc break even point at a company level. If trying to do this by item, then you would have to allocated fixed expenses by item based on whatever metric you want: % of total volume, space used, weighted average, etc.

    They way we reconcile it is vs the actual expenses listed on the invoice (also helps validate invoices before payment). So my warehouse budgets are based on past history of my variable expenses x the forecast. If all things remain =, then it should balance.

    Once you know the variable expenses by item, you can use those # against sales projections to get your contribution margin. You already know your fixed expenses so it should be math at that point. The hardest part is determining how you want to allocate variable expense by item.
     
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  4. Nov 8, 2018 at 2:58 PM
    #4
    Marty McFly

    Marty McFly My catch phrases: Cowabunga!!! That’s heavy !!!

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    Just what I suspected. Yep I’ve got nothing.
     
    Last edited: Nov 8, 2018 at 3:07 PM
  5. Nov 8, 2018 at 3:03 PM
    #5
    smslavin

    smslavin [OP] On a plane...

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    that just put me in the right direction. so, a little noodling and i'm going to use this...

    fixed expenses per day / weighted avg selling price - weighted avg variable expenses = break-even point in units per day

    now, i just need to take a random dart board guess at how many units of each product will sell...
     
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  6. Nov 8, 2018 at 3:05 PM
    #6
    COMiamiFan

    COMiamiFan Now you know something

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    Magic eight ball is a better predictor of sales IMO
     
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  7. Nov 8, 2018 at 3:05 PM
    #7
    Blueknights75

    Blueknights75 WHITE is the FASTEST color!!!!!

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    Pimpin ain’t easy obviously!
     
  8. Nov 8, 2018 at 3:06 PM
    #8
    COMiamiFan

    COMiamiFan Now you know something

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    Nope. It's hard out here for a pimp.
     
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  9. Nov 8, 2018 at 3:07 PM
    #9
    smslavin

    smslavin [OP] On a plane...

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    well, i have a prediction of what i want for each product for the year plus a growth estimate for three years out. numbers are based on past history and slightly on the conservative side.
     
  10. Nov 8, 2018 at 3:32 PM
    #10
    mdavis

    mdavis I need a beer.

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    Jose dropping knowledge.
     
  11. Nov 8, 2018 at 3:35 PM
    #11
    ninjajay

    ninjajay Posting from the toilet

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    You need to factor in cost of capital
     
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  12. Nov 8, 2018 at 3:38 PM
    #12
    smslavin

    smslavin [OP] On a plane...

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    i have a 5 year depreciation schedule for long term assets but i'm under the assumption that goes into a cash flow statement not a break even analysis. am i wrong?
     
  13. Nov 8, 2018 at 3:43 PM
    #13
    ninjajay

    ninjajay Posting from the toilet

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    Cost of working capital. Without that information, you're assuming your "do nothing" scenario has a zero return.
     
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  14. Nov 8, 2018 at 3:54 PM
    #14
    COMiamiFan

    COMiamiFan Now you know something

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    Don’t recall. Has been years since I’ve done accounting and financial statements
     
  15. Nov 8, 2018 at 4:01 PM
    #15
    Darkness

    Darkness New Member

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    I need 3 beers before I can do this
     
  16. Nov 8, 2018 at 4:03 PM
    #16
    Professional Hand Model

    Professional Hand Model Fred Brookes

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    Set a base cost of the widget for sale. Then adjust your variables ‘UP’ as the variable rises in cost. As a general rule, items alway ‘INCREASE’ in cost so move your base variable ‘UP’ each quarter.

    Assuming you have a history with you product, you will begin to develop ratios for each widget as time goes along. Each ratio is applied how you see fit depending on demand and supply.

    Business and sales, especially with variable cost products, are a combo of art and science that hopefully lets you make the proper ‘PROJECTION’.
     
  17. Nov 8, 2018 at 4:06 PM
    #17
    15whtrd

    15whtrd I tried being reasonable, but I didn't like it.

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    You lost me on the first post. My head hurts
     
  18. Nov 8, 2018 at 4:07 PM
    #18
    War Machine

    War Machine Premium Elite Member

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    My wife is really good at this stuff. Unfortunately, she’s not speaking to me, so good luck.

    Unfortunately for you I mean. It’s a pretty decent deal on my end.
     
  19. Nov 8, 2018 at 4:09 PM
    #19
    ARamirez73

    ARamirez73 JUST A HOBO RIDIN' THEM RAILS TO ANYWHERE

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    :rofl:
     
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  20. Nov 8, 2018 at 4:10 PM
    #20
    ARamirez73

    ARamirez73 JUST A HOBO RIDIN' THEM RAILS TO ANYWHERE

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    Thought this was about Tundras and the missing 10mm socket and popping noise after start up
     
  21. Nov 8, 2018 at 4:15 PM
    #21
    Professional Hand Model

    Professional Hand Model Fred Brookes

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    I’d be nice if your variable cost suppliers would send you their formulas. Ain’t gonna happen. Key is to try and figure out their ‘formula’ then you just do a multiplier on your end.

    What are we selling by the way?
     
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  22. Nov 8, 2018 at 4:20 PM
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    15whtrd

    15whtrd I tried being reasonable, but I didn't like it.

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    You’re killing me over here. I literally laughed out loud. My wife looked at me but I refused to tell her what I’m laughing at. Oh nothing honey!
     
  23. Nov 8, 2018 at 4:20 PM
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    Darkness

    Darkness New Member

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  24. Nov 8, 2018 at 4:25 PM
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    Viper

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    The solution to this is so simple if you break it down to the basic formula of cost per x item multiplied by the total equation. Once this number is confirmed breakdown the final product as being A = .35 + 18 (A=D x .65= 9/57 + 19) :taco:
     
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  25. Nov 8, 2018 at 4:37 PM
    #25
    smslavin

    smslavin [OP] On a plane...

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    :thumbsup:

    my supplier costs are fixed. their prices increase but usually at an annual rate. some haven't gone up in years. it's the amount of things i bundle with my products that makes my costs variable.

    putting a plan together to get out of the day job and back to shooting full time.
     
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  26. Nov 8, 2018 at 4:39 PM
    #26
    Azblue

    Azblue New Member

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    OK, let me give it a go in terms that I can understand.

    Increase in happiness (#of beers consumed) - sadness (watching beer supply drop as a result) + relief (realizing the wife bought more beer today) / quantity (how much beer did she buy) x temperature (did she put it in the fridge early enough) = The grand total +/- of the break even point.


    Of course there are variables that can be added to this equation such as ability to function (did she also purchase whiskey), but I don't want to over complicate things.
     
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  27. Nov 8, 2018 at 4:58 PM
    #27
    Professional Hand Model

    Professional Hand Model Fred Brookes

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    In the spirt on keeping things simple, here is how I achieve my formula for making money. Feel free to use it. It works!

    Start with how much money do you want to make. For grins lets say $150k.

    Now, ask how many days do you want to work. For grins lets say 150.

    Now, you know you need to make $1000 a day.

    Now add your costs plus 30% and charge them on top of your $1000 a day.

    Break your labor days into half (minimum $500) or full ($1000).

    And always pay your taxes on time!
     
  28. Nov 8, 2018 at 5:23 PM
    #28
    NewImprovedRon

    NewImprovedRon SouthBoundSteve Fan Club President

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    :eek::eek::eek: Dang, Jose! And just when I thought you were asleep! LOL!!
     
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  29. Nov 8, 2018 at 5:29 PM
    #29
    joonbug

    joonbug bacon bastrd

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    4. That’s my final answer.
     
  30. Nov 8, 2018 at 5:34 PM
    #30
    NewImprovedRon

    NewImprovedRon SouthBoundSteve Fan Club President

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    I graduated with a BS degree in accounting, went straight into the Army, never used it, and now I got nuthin'.... Good luck with your project @smslavin ! Reference depreciation, it represents a very real cost of doing business. Some companies use straight line depreciation (asset cost divided by the number of years of useful life) and others accelerated depreciation which assumes higher up-front depreciation with less toward the end of the asset's useful life. Ok I'm going back to sleep now....
     

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