Finance- Break even

Finance - Break even

• Fixed costs
• What are they?
• Fixed costs are business costs, such as rent,salaries that are constant and never change whatever the amount of goods produced.
• Variable Costs
• What are they?
• Variable costs are a cost that varies with the level of output. Such as raw materials, transport, and wages.

Break even Limitations

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• Legenda: Break even Chart
• Unrealistic assumptions – products are not sold at the same price at different levels of output; fixed costs do vary when output changes
• Sales are unlikely to be the same as output – there may be some build up of stocks or wasted output too.
• Variable costs do not always stay the same. For example, as output rises, the business may benefit from being able to buy inputs at lower prices (buying power), which would reduce variable cost per unit.
• Most businesses sell more than one product, so break-even for the business becomes harder to calculate
• Break-even analysis should be seen as a planning aid rather than a decision-making tool