2.2.3 Break-even

• Break-even Output

  FC/SP-VC
• Contribution per unit

  Selling price - variable costs per unit
• Profit

  Total contribution - Fixed costs
• Margin of Safety

  Sales - Break-even Output
• Ways to Boost Total Contribution

  -Sell more units

  -Increase price

  -Decrease variable costs
• Uses of a Break-even

  -estimate future level of output to meet profit goals

  -assess the impact of price changes

  -take decisions to produce components themselves or to outsource
• Limitations of Break-even Analysis

  -The model is a simplification

  -Assumes all output is sold at a single price

  -Assumes that all output is sold

  -Is a static model and does not account for sales trends