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E-Folder - How to Calculate Your Break-Even Point and How to Use It
Definition of Break-Even:
The Break-Even point in sales volume is defined as:
“That point in sales volume, or revenue, where direct costs have been recovered, fixed
The Break-Even point in sales volume is defined as:
“That point in sales volume, or revenue, where direct costs have been recovered, fixed
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
overhead expenses have been absorbed and where profit begins”.
We can relate Break-Even Point to the information in our financial statements, particularly the Income
We can relate Break-Even Point to the information in our financial statements, particularly the Income
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
Statement. The Income Statement should be organized into the following sections:
1. Revenue
The sum of all sales and other income net of returns and sales commission
1. Revenue
The sum of all sales and other income net of returns and sales commission
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
s.
2. Cost of Sales (Cost of Goods Sold)
The cost of purchases that are resold (merchandise) and/or raw materials plus the costs of labor to manufacture the product
2. Cost of Sales (Cost of Goods Sold)
The cost of purchases that are resold (merchandise) and/or raw materials plus the costs of labor to manufacture the product
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
or convert it or install it or deliver it or construct it on site. These costs are also called direct or variable costs.
3. General & Administrative Costs (Overhead)
3. General & Administrative Costs (Overhead)
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
These are all the costs not directly, or easily, related to sales volume such as Advertising, Bank Charges, Computer Expenses, Insurance, Office Wages & Salaries, Off
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
icer’s Compensation, Telephone, Utilities, Depreciation, Interest, Taxes etc. These costs are also called indirect or fixed costs.
4. 1 minus 2 minus 3 = PROFIT.
Not
4. 1 minus 2 minus 3 = PROFIT.
Not
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
e: If your Income Statement is not organized in this fashion (called managerial accounting format), you need to have a session with your accountant and demand it be pu
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
t into this format so you can manage the business better.
Once you have your financial statements and data in the right format, you can easily calculate Break-Even us
Once you have your financial statements and data in the right format, you can easily calculate Break-Even us
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
ing the following formula as:
Break-Even Point = FC/(1-VC/S)
Where: FC = Fixed Costs
VC = Variable Costs
S = Sales
For illustrative purposes, let’s look at an
Break-Even Point = FC/(1-VC/S)
Where: FC = Fixed Costs
VC = Variable Costs
S = Sales
For illustrative purposes, let’s look at an
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
example company, Acme Specialties that has the following data from its Income Statement:
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,00
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,00
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
0
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
- .71 = .29
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calc
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calc
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
ulated for:
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers a
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers a
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
bove.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business s
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business s
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
uch as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes in fixed and variable costs (and sales) that
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
result from the decision and plug them into the Break-Even formula for your company. This can also help you set goals for the new operation.
In fact, ANY significant
In fact, ANY significant
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
contemplated change in your cost structure resulting from a proposed decision can be modeled to determine the effect on the company’s financial results before the deci
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
sion is made. You will know what you face and are required to overcome ahead of time. You will be able to set goals based on financial facts rather than intuition only
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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