Virtual Enterprises, International
Purchase and Sale Transactions and Breakeven Analysis
GLOSSARY OF TERMS
Gross profit margin: sales revenue minus the cost of goods sold
Gross profit margin percentage: gross profit expressed as a percentage of sales.
Expenses: the cost of the goods or services that are used to operate a business.
Fixed expenses: expenses that remain stable as sales increase or decrease.
Revenue: income earned by a business from its operations.
Net Income: the difference between gross profit and the operating expenses for a period of
time.
Variable expenses: expenses that vary as sales increase or decrease.
Breakeven analysis: an analysis that is used to answer the question, “how much does the
company have to sell, given its profit margin percentage, so that there is sufficient gross
profit available to pay the company’s expenses?” If the level of sales is less than the
breakeven level, the company will not be profitable, if the level of sales is greater than the
breakeven level, the company will be profitable.
• The breakeven point can be expressed in sales dollars (that is the dollar value of the
sales the company must make in order to breakeven).
• The breakeven point can also be expressed in units (that is the quantity of units that must
be sold in order to breakeven).
Merchandise Inventory: goods bought for resale to customers.
Wholesaler: a business that sells to retail businesses.
Retailer: a business that sells to end users (consumers).
Depreciation: a method of allocating the cost of an asset over that asset's useful life. In VE,
all assets are depreciated over 5 years, therefore the depreciation expense, per year, is
20% of the cost of the asset.
Assets: property or economic resources owned by a company or an individual.
Liabilities: amounts owed to creditors; th eclaims of creditors on the assets of a business.
Owners' equity (shareholders equity for a corporation): the owners' claims on or
investment in a the assets of a business.
World Wide Lamps
Income Statement
For the Month Ending 10/31/2009
Sales 12000
Returns 0
This is a multi-step Net Sales 12000
income statement. Cost of Goods Sold 7500
* In the first step,
Gross Profit 4500
the gross profit is
provided.
* In the next step, Profit margin percentage = 37.50%
the total expenses
are provided. Salaries 4000
* In the next step, Rent 1800
the net income (or Depreciation 1500
net loss) is Advertising 500
provided.
Payroll tax 306
Insurance 100
Utilities 445
Interest 874
401(k) 300
Supplies 175
Total 10000
Net income (loss) (5500.00)
Inventory, beginning of the year 0
Purchases 10000
Cost of direct labor 0
Other direct costs 0
Total 10000
Inventory, end of year 2500
Cost of goods sold 7500
9
Profit margin percentage =
Gross profit/Total sales =
You will need this ratio to
determine the break even point
This step is necessary
because the quantity of
merchandise inventory you
buy may not be equal to
the amount of
merchandise inventory you
sell.
Break-even Analysis
Data Required for Break-even Analysis
Average selling price per sale 80
Average cost of goods sold per sale 50
Note: for sake of simplicity, in VE, all costs except cost of goods sold are
Monthly fixed costs (monthly operating expenses) 10000 considered to be "fixed."
Average profit percentage 0.375
$ 80.00 $ 50.00
# Units (Average) Break-even analysis
sold Revenue Variable cost Fixed cost Total cost
0 $ - $ - $ 10,000 $ 10,000 $80,000
50 $ 4,000 $ 2,500 $ 10,000 $ 12,500
100 $ 8,000 $ 5,000 $ 10,000 $ 15,000 $70,000
150 $12,000 $ 7,500 $ 10,000 $ 17,500
200 $16,000 $ 10,000 $ 10,000 $ 20,000 $60,000
250 $20,000 $ 12,500 $ 10,000 $ 22,500
Dollars
300 $24,000 $ 15,000 $ 10,000 $ 25,000
350 $28,000 $ 17,500 $ 10,000 $ 27,500 $50,000
400 $32,000 $ 20,000 $ 10,000 $ 30,000
450 $36,000 $ 22,500 $ 10,000 $ 32,500 $40,000
500 $40,000 $ 25,000 $ 10,000 $ 35,000
550 $44,000 $ 27,500 $ 10,000 $ 37,500
$30,000
600 $48,000 $ 30,000 $ 10,000 $ 40,000
650 $52,000 $ 32,500 $ 10,000 $ 42,500
700 $56,000 $ 35,000 $ 10,000 $ 45,000 $20,000
750 $60,000 $ 37,500 $ 10,000 $ 47,500
800 $64,000 $ 40,000 $ 10,000 $ 50,000 $10,000
850 $68,000 $ 42,500 $ 10,000 $ 52,500
900 $72,000 $ 45,000 $ 10,000 $ 55,000
950 $76,000 $ 47,500 $ 10,000 $ 57,500 $-
0 100 200 300 400 500 600 700 800 900 1000
Units
Revenue Variable cost Fixed cost Total cost
Breakeven point in sales dollars:
Total sales at breakeven * average profit percentage = fixed costs
Total sales at breakeven * .375 = 10000
Total sales at breakeven = $26,666.67
Break-even Analysis
Data Required for Break-even Analysis
Average selling price per sale 80
Average cost of goods sold per sale 50
Note: for sake of simplicity, in VE, all costs except cost of goods sold are
Monthly fixed costs (monthly operating expenses) 10000 considered to be "fixed."
Average profit percentage 0.375
$ 80.00 $ 50.00 Break-even analysis
# Units (Average) Break-even analysis
sold Revenue Variable cost Fixed cost Total cost $80,000
0 $ - $ - $ 10,000 $ 10,000 $80,000
50 $ 4,000 $ 2,500 $ 10,000 $ 12,500 $70,000
100 $ 8,000 $ 5,000 $ 10,000 $ 15,000 $70,000
150 $12,000 $ 7,500 $ 10,000 $ 17,500 $60,000
200 $16,000 $ 10,000 $ 10,000 $ 20,000 $60,000
Dollars
250 $20,000 $ 12,500 $ 10,000 $ 22,500
Dollars
300 $24,000 $ 15,000 $ 10,000 $ 25,000 $50,000
350 $28,000 $ 17,500 $ 10,000 $ 27,500 $50,000
400 $32,000 $ 20,000 $ 10,000 $ 30,000 $40,000
450 $36,000 $ 22,500 $ 10,000 $ 32,500 $40,000
500 $40,000 $ 25,000 $ 10,000 $ 35,000
$30,000
550 $44,000 $ 27,500 $ 10,000 $ 37,500
$30,000
600 $48,000 $ 30,000 $ 10,000 $ 40,000
650 $52,000 $ 32,500 $ 10,000 $ 42,500 $20,000
700 $56,000 $ 35,000 $ 10,000 $ 45,000 $20,000
750 $60,000 $ 37,500 $ 10,000 $ 47,500 $10,000
800 $64,000 $ 40,000 $ 10,000 $ 50,000 $10,000
850 $68,000 $ 42,500 $ 10,000 $ 52,500
900 $72,000 $ 45,000 $ 10,000 $ 55,000 $-
$- 0 100 200 300 400 500 600 700 800 900 1000
950 $76,000 $ 47,500 $ 10,000 $ 57,500 Units
0 100 200 300 400 500 600 700 800 900 1000
Units
Revenue Variable cost Fixed cost Total cost
Revenue Variable cost Fixed cost Total cost
Breakeven point in units sold:
Breakeven point in units = Fixed costs/(Average selling price per unit - average variable cost per unit)
Breakeven point in units = 10,000/(80 - 50)
Breakeven point in units = 333.33
1000
