# Net Income and Sales Volumes

## Introduction

Here we will look at the effects of changes in selling price, fixed costs, and variable costs on the net income and break-even point.

The use of graphs can also help us with break-even analysis.

We usually call the graph showing the total revenue and the total cost graphs together a break-even chart.

This chart is an easy visual way to analyze the financial position of a business for different number for units

sold (sales volume) or produced (volume of output).

We can see at a glance the amount of profit or loss that is generated for different levels of sales or production.

## Net Income and Sales Volume

The unit variable costs are $30. The selling price of the unit is $60.

The capacity for the period is 200, and the fixed costs are $3000.

Question: What is the net income at a sales volume of:

(1) Scenario 1: $4200?

Solution:

TR equation is used to find the number units Q for a sales volume of $4200.

A sales volume of $4200 means that the total revenue is $4200.

TR = 60Q ⇒ 4200 = 60Q ⇒ Q = 70 units

The graph below shows the drawing of both equations: TR and TC:

The next graph shows that based on the current situation, the business is incuring a loss of $900.

(1) Scenario 2: $9600?

Solution:

TR equation is used to find the number units Q for a sales volume of $9600.

A sales volume of $4200 means that the total revenue is $9600.

TR = 60Q ⇒ 9600 = 60Q ⇒ Q = 160 units

The graph below shows the drawing of both equations: TR and TC:

The next graph shows that based on the current situation, the business is incuring a profit of $1800.

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Date of last modification: March 19, 2019