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Business Definition for: equation method
equation method

method used to find the break-even point or target income volume in Cost-Volume-Profit (CVP) Analysis or break-even analysis . The equation is:

Sales = Variable Costs + Fixed Costs + Net Income

Let p = unit selling price, x = volume, v = unit variable cost, and FC = total fixed costs; the equation becomes
px =vx +FC+Net Income

At the break-even volume, px = vx + FC + 0. To find the break-even point in units, simply solve the equation for x. Assume p= $250, v = $150, andFC = $35,000. Then the equation is:
250x = $150x + $35,000 + 0
$100x = $35,000
x = 350 units
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.

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