So we will find the managerial perspective of organizing revenue and cost information to be incredibly useful for cost-volume-profit analysis. This is a crucial tool used in organizations to facilitate decisions. It's especially helpful for asking what if type decisions. What if our costs change? What if we want to change our sales price? What if we want to enter into a new market? How many units will we need to break even? Basically, this analysis uses estimates, or what we already know, to make predictions about what we want to know. Let's take a closer look at cost-volume-profit analysis. We're going to begin with the fundamental equation that we introduced as the managerial perspective. We're going to have profit be a function of revenues, subtracting our total variable costs, and our total fixed costs. We're going to use algebra to reorganize these terms to help us ask a very fundamental question. And that is, how many units do we have to sell to break even, to start to make profits? So beginning with our equation, we essentially are asking, where is it that we break even? Which is equivalent to setting profit to $0, where we don't lose any money but we don't make any money in this accounting period. And so our profit figure becomes 0, and the rest of the equation is exactly the same. Revenues minus total variable costs minus total fixed costs equal to 0. In Step 2, we'll continue to reorganize these terms. We're going to simplify these terms into their fundamental components, if applicable. So we can think about revenues as a function of two things. One, the number of units that we sell multiplied by the selling price of each of those units. The product of those two terms would be our total revenues, and all we've done is broken them down into those components. We can do the same thing with total variable costs. The number of units that we produce and sell, we incur a variable cost per unit for each of those. So total variable cost would be the product of a variable cost per unit times the number of units that we produce and sell. Total fixed cost is a little bit more tricky. We can divide by the number of units that we produce and sell but that's what we're using this equation to find out. We don't know what that Q, or that quantity, actually is so because that might change, we don't devise total fixed cost by that quantity. So we'll leave total fixed cost as it is, in total. Now let's continue reorganizing. What we had was 0 profits, our breakeven point, is equal to selling price times the quantity sold, subtract from that the variable cost per unit times the quantity sold and subtract further total fixed costs. Let's isolate fixed cost because that's a total figure, and factor out the Q or quantity. So in this two step process, we add to both sides of our equation, total fixed costs, which essentially moves it to the left side, and we factor out a Q from both the revenues and the variable components of our equation. So Q multiplied by the difference between selling price and variable costs is on the right-hand side. And let's move some things around even further. Let's essentially isolate Q, which is what we're using this equation to find, the quantity of units it takes to break even, to yield profit equal to 0. And that involves dividing both sides by the selling price minus variable cost number. So, essentially, we have that the breakeven quantity is computed as total fixed cost divided by selling price minus variable cost. Now reflect back on our managerial perspective of the income statement. And what we learned there was that the difference between our revenues and our variable costs was referred to as contribution margin. That's essentially what we have in the denominator of this equation. The difference between selling price per unit and the variable cost per unit is a contribution margin per unit. That's, essentially, how much is left for each unit after covering our variable costs. If we divide that number on a per unit basis into total fixed costs, we calculate the number of units it takes to break even.