Costs and Revenue for Two Types of Insulin - Break-Even Analysis: Insulin

An activity that looks at break-even for Level 2.

Break-Even Analysis: Insulin - Costs and Revenue for Two Types of Insulin

Take a look at the information below. What is the problem facing the company and what should it do about it?


Insulin is a drug that is needed by people who suffer from diabetes. With regular intakes of this drug their health is kept stable and they are able to get on with their everyday lives.

A company is producing two types of insulin. At the moment it is selling 20 units of animal insulin at a price of 20 and 80 units of 'human' insulin at a price of 25.

Animal insulin

  • Cost per unit = 12
  • Price = 20
Output FC VC TC TR Profit
0 350 0 350 0 -350
10 350 120 470 200 -270
20 350 240 590 400 -190
30 350 360 710 600 -110
40 350 480 830 800 -30
50 350 600 950 1,000 50
60 350 720 1,070 1,200 130
70 350 840 1,190 1,400 210
80 350 960 1,310 1,600 290
90 350 1,080 1,430 1,800 370
100 350 1,200 1,550 2,000 450

'Human' or genetically modified insulin

  • Cost per unit = 7
  • Price = 25
Output FC VC TC TR Profit
0 440 0 440 0 -440
10 440 70 510 250 -260
20 440 140 580 500 -80
30 440 210 650 750 100
40 440 280 720 1,000 280
50 440 350 790 1,250 460
60 440 420 860 1,500 640
70 440 490 930 1,750 820
80 440 560 1,000 2,000 1,000
90 440 630 1,070 2,250 1,180
100 440 700 1,140 2,500 1,360

Key

  • Cost per unit: The additional cost of making each extra unit of the product
  • Output: The number of items produced
  • Price: The price charged to customers
  • TC: Total Cost - The fixed cost plus the variable cost for that output
  • FC: Fixed Cost - the cost (e.g. interest paid on loans) that will have to be paid even if nothing is made
  • TR: Total Revenue - The amount of money the company will get from sales: the price times the output
  • VC: Variable Cost - The cost per unit times the number produced

What do you think the company should do? Should they increase the price of animal insulin? Stop production of animal insulin? Decrease the price of human insulin? Increase production of animal insulin? Or maybe you have another idea. Choose your preferred strategy.

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