# 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.