Equation Technique

This is the most general form of analysis, which can be applied to any cost volume profit situation. It is based on an income equation: Sales revenue Total costs = Net profit Breaking up total costs into fixed and variable, Sales revenue Fixed costs Variable costs = Net profit or Sales revenue = Fixed costs + Variable costs + Net profit.

If S he the number of units required for break-even and sales revenue (SP) and variable (VC) are on per unit basis, the above equation can be written as follows:

SP(S)= FC + VC (S)+ M

Where SP = Selling price per unit

S= Number of units required to be sold to break-even
FC = Total fixed costs .
VC = Variable costs per unit
M = Net income (zero)
SP(S) = FC + VC (S)+ zero
SP(S) – VC (S)= FC
or S (SP – VC) = FC

S =  FC / SP-VC

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