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Break Even

1 Fixed costs

1.1 a cost that will not
change with output

1.2 Examples-Rent, Salary

2 variable costs

2.1 costs that do change with output

2.2 Example-Raw materials, insurance

3 Break even analysis

3.1 Shows the
point at which
a business
expects to
start making
a profit.

3.1.1 it can be used to
calculate the sales
needed to make a profit
at any given time or
price

4 Working out the break even point

4.1 Fixed costs / selling price - variable costs

5 Table and chart method

5.1 Step 1- Work out the table

5.1.1 step 2- plot fixed costs

5.1.1.1 step 3- plot variable costs

5.1.1.1.1 step 4- plot total cost

5.1.1.1.1.1 step 5- plot sales line

5.1.1.1.1.1.1 step 6- when the sales line and total cost
line cross it shows the break even point.

5.1.1.1.1.1.1.1 draw a dotted
line down to
the number on
the x axis and
that's the
break even
point

5.1.2 plot Y and X axis on
the graph

6 Calculations

6.1 total revenue

6.1.1 number of sales x selling price per unit

6.2 Total costs

6.2.1 Fixed costs + variable costs

6.3 Profit

6.3.1 Total Revenue - Total costs

7 Advantages and disadvantages

7.1 Advantages

7.1.1 calculate in advance the amount of sales needed to break even

7.1.1.1 shows changes in output affects profits

7.2 Disadvantages

7.2.1 it assumes all output

7.2.1.1 in accurate graph plotting can mess up the whole graph

8 Ict

8.1 how will it help with break even graphs

8.1.1 more accurate

8.1.1.1 quicker can make more changes quickly

8.1.1.1.1 if you need to add something the computer will do it for you.

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