Page 188 - PARAMETER E

Part 4- Income Generating Projects

6.5.7. Labor Sales Ratio = Labor Cost
Sales

This ratio shows how much is spent on labor per sales revenue generated by the project.

6.5.8. Labor- Sales Generation Efficiency = Net Income
Labor Cost
This ratio shows the amount of sales revenues generated per peso labor cost incurred in
the project.

6.5.9. Labor – Income Generation Efficiency = Net Income
Labor Cost
This ratio shows the amount of net income realized per peso labor cost incurred in the
project.

6.6. Breakeven Analysis
The minimum level of production and sales volume that could be maintained by the project
to have at least breakeven should be known by the Project Manager. The cost structure of the
project can also be considered in the setting of selling price and the desired profit in a given
production period. A breakeven means that the project will neither earn a net income/profit nor

incur a net loss in its operation.
Following is the breakeven model that can be used in determining the desired selling price
and production/sales volume that would help achieve the project’s objectives.

6.6.1. Breakeven price (BEP) = Total Operating Expenses
Total Quantity Produced
This will give us the minimum selling price that we can offer to at least breakeven. It means
that a net income/profit will be realized if we sell our product above this price, while a net loss will
be incurred, if sold below this price.

6.6.2. Breakeven Volume (BEV) = Total Operating expenses
Proposed Selling Price
This will help us determine the minimum production level that should be produced and sold
by the project to at least breakeven. It means that production above this level will help the project
realize a net income. However, if production is below this level, a net loss will be incurred.
If the project would like to attain its target net income/profit in a given production period,
the following formulas will help guide the Project Manager.

6.6.3. BEP to attain Target Net Income = Total Operating Expenses + Target Net Income
Total Quantity Produced

This will guide us in the product price that we can offer to attain our target net income in a
given production period.

6.6.4. BEV to attain Target Net Income = Total Operating Expenses + Target Net Income
Proposed Selling Price

This will guide us on how to produce and sell to attain our target net income in a given
production period.

175
IFSU Code