Faculty of Engineering
BUS x21 – Engineering Economy
Fall 2025
Breakeven Analysis
Notations and Equations
Parameter
Description
p
Selling Price (LE per unit)
cv
Variable Cost Per Unit (LE per unit)
FC
Fixed Cost (LE)
VC
Variable Cost (LE)
Q
Number of Units (units)
TR
Total Revenue (LE)
TC
Total Cost (LE)
BEPx
Breakeven Volume (units)
BEPLE
Breakeven in LE (LE)
TC = FC + cv × Q
TR = p × Q
Profit = p × Q – (FC + cv × Q)
Q = (Profit + FC) / (p – cv) “Required Quantity to achieve desired profit”
BEPx =
BEPLE =
FC
p−cv
FC
c
1− pv
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Practice Problems
1. The manager of a footwear company is considering whether to produce a new line of footwear.
He has estimated that the variable cost for each product manufactured and sold is 50 LE and the
fixed cost per year is 50,000 LE. The selling price of the product is 60 LE per unit.
a) Calculate number of units to be sold each year to cover the production costs?
b) Determine the annual revenue in case of selling 5,000 units?
c) Determine the profit achieved if the sales volume reached is 20,000 products per year?
d) Calculate variable cost that can yield annual profit of 25,000 LE in case of selling 20,000
products per year?
2. In a manufacturing plant, the production data last month were as follows: selling price = 150 LE
per unit, variable cost per unit = 100 LE per unit, fixed costs = 100,000 LE, and profit = 50,000
LE.
a) How many units were sold last month?
b) Determine last month breakeven volume?
c) Determine last month total cost?
d) Starting next month, the manager is considering raising the selling price of the product by
10% to meet an expected increase in fixed costs by 30%. Assuming the same sales volume,
will the manufacturing plant profit change?
3. A manufacturing plant produces a product sold with selling price of 10 LE per unit. The plant’s
fixed cost is 60,000 LE and its variable cost is 6 LE per unit. Given the following chart, you are
requested to:
250000
200000
LE
150000
100000
50000
0
0
5000
10000
15000
20000
25000
Quantity
a) Label each of the lines on the chart.
b) Complete the breakeven chart to indicate the breakeven volume graphically.
c) Calculate the breakeven volume?
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d) What is the value of breakeven in LE?
e) If the selling price increased by 10%, how will the breakeven point be affected?
4. A plant operation has fixed costs of 2,000,000 LE per year, and its output capacity is 100,000
electrical appliances per year. The variable cost is 50 LE per unit, and the product selling price is
90 LE per unit.
a) What is the breakeven volume per year?
b) What is the percentage of the breakeven volume to the plant’s capacity?
c) What percentage reduction will occur in the breakeven volume if fixed cost is reduced by
10%?
d) What percentage reduction will occur in the breakeven volume if the sales price is increased
by 15%?
e) If you were to choose between reducing the fixed cost as in (c) or increasing price as in (d),
which one would you choose economically?
5. The owner of pies shop is considering adding a new line of pies, which will require leasing new
equipment for a monthly payment of 6,000 LE. Variable costs would be 2 LE per pie, and pies
would be sold at 7 LE each.
a) How many pies must be sold in order to break even?
b) What is the value of breakeven in LE?
c) What would the profit (loss) be if 1,000 pies are made and sold in a month?
d) How many pies must be sold to realize a profit of 4,000 LE?
e) If 2,000 can be sold, and a profit target is 5,000 LE, what price should be charged per pie?
6. The owner of pizza restaurant is considering a new oven in which to bake the firm’s signature
dish, vegetarian pizza. Oven type A can handle 20 pizzas an hour. The fixed costs associated with
oven A are 20,000 LE and the variable costs are 2.00 LE per pizza. Oven B is larger and can
handle 40 pizzas an hour. The fixed costs associated with oven B are 30,000 LE and the variable
costs are 1.25 LE per pizza. The pizzas sell for 14 LE each.
a) What is the breakeven point for each oven?
b) If the owner expects to sell 9,000 pizzas, which oven should be purchased?
c) If the owner expects to sell 14,000 pizzas, which oven should be purchased?
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Final Answers
1. 5,000 units, 300,000 LE, 150,000 LE, LE 56.25 /unit
2. 3,000 units, 2,000 units, 400,000 LE, Manufacturing plant profit will increase
3. TC and FC, 15,000 units, 150,000 LE, BEP decreased
4. 50,000 units/year, 50%, 10%, 25.23%, Increasing price
5. 1,200 pies, 8,400 LE, –1,000 LE, 2,000 pies, 7.5 LE/pie
6. 1,667 pizzas and 2,353 pizzas, Oven A should be purchased, Oven B should be purchased
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