8. Analyze the Results
If the break-even point is larger than the estimated revenue determined in step 1, then you will make a profit!
Consider the outcome for My Delicious Bakery:
Estimated revenue - Break Even Point = Excess Revenues
$300,000 - $132,450 = $167,550
Excess Revenues x Contribution Margin Ratio = Pre-tax Profit
$167,550 x 75.5% = $126,500
Proceed cautiously as you analyze the results of the break-even analysis. The numbers are based upon estimates, and it is tempting to redo the analysis with different figures. Be sure to have a concrete reason for adjusting a number. For example, if you identify a way to reduce costs, then adjust the numbers appropriately. Be extremely careful when adjusting revenue estimates to fit a preconceived expectation.
Reference: Kimmel, Paul D., Jerry J. Weygandt, and Donald E. Kieso. Financial Accounting: Tools for Business Decision Making. New York, NY: Wiley, 2008. Print.