Break Even

Break Even

1. Fixed costs

   • a cost that will not change with output
   • Examples-Rent, Salary

2. variable costs

   • costs that do change with output
   • Example-Raw materials, insurance

3. Break even analysis

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

   • Fixed costs / selling price - variable costs

5. Table and chart method

   • Step 1- Work out the table
     • step 2- plot fixed costs
       • step 3- plot variable costs
         • step 4- plot total cost
           • step 5- plot sales line
             • step 6- when the sales line and total cost line cross it shows the break even point.
               • draw a dotted line down to the number on the x axis and that's the break even point
     • plot Y and X axis on the graph

6. Calculations

   • total revenue
     • number of sales x selling price per unit
   • Total costs
     • Fixed costs + variable costs
   • Profit
     • Total Revenue - Total costs

7. Advantages and disadvantages

   • Advantages
     • calculate in advance the amount of sales needed to break even
       • shows changes in output affects profits
   • Disadvantages
     • it assumes all output
       • in accurate graph plotting can mess up the whole graph

8. Ict

   • how will it help with break even graphs
     • more accurate
       • quicker can make more changes quickly
         • if you need to add something the computer will do it for you.