Break Even Analysis

Break Even Analysis

1. Costs

   • Fixed
     • Costs that don't change depending on output e.g. rent, bills
   • Variable
     • Costs that do change depending on output e.g. petrol, raw materials
       • Variable costs x output

2. Break Even Formula

   • Fixed Cost divided by Contribution
     • Contribution = Selling price - Variable cost

3. Graphs

   • Profit is anything above the point where the total socts crosses the revenue

4. Profits, Cost and Revenue

   • Profit
     • Revenue - Total Costs
   • Costs
     • The expenses the business has to pay
   • Revenue
     • The total amount of money made from sales
     • Output x Selling Price

5. Break even analysis is calculating the break even point, using fixed costs, variable costs and revenue

   • Uses
     • Can see how much stock needs to be sold before hand
     • Helps companies set targets
   • Limitations
     • It assumes everything gets sold and nothing is kept for stock
     • Hard to do for multiple products as it would be a tedious process

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