Let's apply cost volume profit analysis to GnG Landscape. Let's focus on a particular product line at GnG Landscape. It's sod line. They're evaluating this line to see how well it's doing. Managers are considering revenues and costs on a per roll basis. So, each roll of sod. The following information is available and we're keeping things relatively simple here. The average revenue earned for each roll of sod is $5. Now perhaps some customers pay slightly more than $5 and others get discounts, but on average across all the rolls that are sold, it's approximately $5 per roll. And the same could be said about the average variable cost per roll. That's $3. Fixed costs are measured on a month by month basis and total fixed costs for the month are usually $20,000. So now let's use this information to calculate the break even point for the number of rolls of sod that need to be sold in order to reach zero profits. So we have our information. The selling price, reported on a per roll basis, again, $5. Variable costs on a per roll basis as well, $3. And fixed costs are in total $20,000 per month. So let's talk about our equation for calculating the break even point. We had said that Q is a function of the total fixed costs. Reported in the denominator of the equation divided by the difference between the selling price per unit and the variable cost per unit. Again, we refer to that denominator as the contribution margin per unit. So essentially, very simply, we can use the information that's provided And our total fixed costs for the month amount to $20,000. The average revenue, or selling price per unit, is $5. And the average variable cost per unit is $3. That means that on average, the contribution margin per unit is $2. And when I calculate $20,000 divided by the difference between the selling price and the variable cost, or $2, I get that it's 10,000 units. Importantly that's rolls of sod. It's not an financial terms it's the number of unit it takes to break even. Now let's take a look at using the original equation to check our work. Originally we said that profit is equal to revenues Minus variable costs minus fixed costs. And if we were to plug in what we just calculated as the break even point into our equation we're going to see that the profit will be zero. So our revenues was $5. Times those 10,000 units that our analysis adjusted. Minus our variable cost which is $3 per roll. Times the 10,000 units that we would sell. Minus our fixed costs or $20,000 per month. That's equal to $50,000 minus $30,000 in variable costs minus $20,000, and indeed we have zero profits. So with our 10,000 units of producing and selling rolls of sod, we have profits equal to zero which is exactly what our equation suggested. Now, what would happen if we sold less than 10,000 units of sod? Let's say that it's 9,000 units during the month. Well, then our profit would be equal to $5 of revenue per roll, times 9,000 units. Subtract out $3 per roll for variable cost, times those 9,000 units and the $20,000 in fixed cost is subtracted. That would yield a $2,000 loss. So we would be short of our breakeven point. And that makes sense given that 10,000 units is where we break even. But in this scenario we only produced and sold 9,000 units. So what if you were to produce and sell 11,000 units? Our profit in that situation would be calculated as our $5 per unit times 11,000 units, that would yield total revenues. Total variable costs would be $3 per unit times 11,000 units. And our fixed costs would be the same at $20,000. And in this situation, we would actually make $2,000 in profits. This of course, again, makes sense that we produced and sold more units than what we calculated to be the break even point. One more point to make here, and you can see that the loss and the profit in these two alternative scenarios is essentially our contribution margin. Multiplied by the number of units that we miss or beat the break even point by. $2 per unit of contribution margin when we sold 1,000 less than the break even point yield a $2,000 loss. And selling 1,000 more units than our break even point gave us $2 in contribution margin for each of those units and that yield yielded at $2,000 gain. So as you can see we've basically proven that the equation that we used to calculate the break even point indeed gave us the quantity of rolls of sod in this case that it take to earn zero profits. Let's have a checkpoint to make sure we are all on the same page.