Break even

Break even

1. Fixed costs are costs that do not change with output

   • Rent
   • Salary
   • Insurance
   • Tax

2. Variable costs are costs that do change with output

   • Raw Materials
   • Phone bill
   • Wages/Comission

3. Break even is the point where sales are exactly the same as costs

   • It shows us how many things need to be sold to stop loss and start making a profit
   • Break even point formula; fixed costs/selling price - variable costs per unti

4. For the table and chart method, you should complete the table first; using all the different calculations. .

   • Once that is complete, you are ready to plot the graph using an appropriate scale. The y axis should be labelled as costs and the x axis should be labelled output

5. Important formulas to remebmber

   • Total revenue: Selling price per unit * Quantity sold
   • Total costs: fixed costs+ variable costs

6. Advantages of break even analysis

   • Can calculate the number of sales needed to break even
   • Help sets targets for the future
   • Can work out number of sales needed to stop loss
   • Can use a graph for visual representation

7. Disadvantages of break even

   • Assumes no stocks are being held
   • Doesn't consider competition
   • Incorrect data can produce inaccurate results
   • Difficult for multi-product businesses

8. Using ICT can give you a clear representation of what is needed for your business to break even