Break Even level of output

• What is the break-even point (BEP) for a business?

  The point where profit and loss are equal
• How do businesses use the break-even point?

  To determine how many products to sell
• What is the formula to calculate break-even?

  Break-even = fixed costs ÷ (selling price − variable costs)
• What does the result of the break-even calculation indicate?

  How many products need to be sold
• What are fixed costs?

  Expenses that do not change with output
• Give an example of fixed costs.

  Rent for business premises
• What are variable costs?

  Expenses that change directly with output
• Give an example of variable costs.

  Raw materials used in production
• If a business has fixed costs of £400, a selling price of £10, and variable costs of £6, what is its break-even point?

  100 T-shirts
• What happens if the break-even calculation results in a non-whole number?

  Sell an additional item to break even
• Calculate the break-even point if fixed costs are £401, selling price is £10, and variable costs are £6.

  101 T-shirts
• What is the significance of the break-even graph?

  • Visual representation of costs and revenue
  • Shows the break-even point clearly
  • Helps in decision-making for pricing and output
• What are the implications of reaching the break-even point?

  • No profit or loss at BEP
  • Indicates minimum sales needed
  • Essential for financial planning