I just saw this where they calculated break-even-point in a weird way and was wondering if anybody had some insight.
Essentially, there's a fixed cost of $2.5 Billion to build a new railway. There's also a variable cost of $50,000/day to operate the railway.
The daily revenue is $450,000.
The way consultingcase101.com calculated the break-even-point was doing $2.5B/50,000 per day=50,000 days. 50,000 days/365 days=140 years.
I'm a bit confused because I always thought break-even-point was when revenue=costs? There's no mention of revenue at all.
Is this method above correct? If not, how would you calculate the break-even-point?
In order to find break-even point, you only need the FC and the Contribution margin. They have given you the FC, no you need to solve for the CM, which is equal to the revenue minus the variable costs associated with generating that revenue.
2,500,000,000/400,000 = 6,250 days / 365 days/year = 17.12 years.
That is what I would have done
I think that might be a mistake; Myron's calculation looks right to me.
Thanks Myron! That was initial thought as well. I thought to solve it: 1) Break-even point is when revenue=cost 2) $450,000x=$2.5B + $50,000x, with x=the number of days.
Is this correct as well? I was just a bit confused b/c $2.5B was a one-time fixed cost.
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