Break-even Point

Break-even Point

1. Revenue = Number of sales x Price

2. TC = FC + VC

3. Profit + TR> TC

4. Loss = TR < TC

5. Break - even point = FIXED COSTS/ SELLING PRICE - VARIABLE COSTS (contribution)

6. Working out contribution

   • Selling price - variable costs
   • Work out how many units need selling to pay FC and breakeven
     • Fixed Costs/Contribution = No of units.

7. Impact of changes on a business

   • Increase in FC/VC causes BEP to increase
   • Decrease in FC/VC causes BEP to decrease
   • Increase in Selling price causes BEP to decrease
   • Decrease in Selling price causes BEP to Increase

8. When FC change

   • Rent Increase:
     • Increase staff salaries
     • Insurance increase

9. Change in VC

   • Supplier may increase goods
   • Wasting materials due to faulty goods
   • Increased VAt
   • Staff wage increase
   • Paying overtime

10. When Selling Prices change

    • A competitor has a big promotion and take your customers
    • Not selling products because they're too expensive

11. Drawing BE charts

    • Involve drawing three lines
      • Fixed costs
      • Total costs
      • Total revenue

12. Margin of safety

    • Actual sales - Break-even output= margin of safety

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