2.2.3 break even

• Break-Even


  is the point at which a business does not make a profit of loss
• Break-Even Analysis


  a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output
• contribution


  contribution looks at the surplus made on each product sold by the business. it shows how many products need to be sold to cover the fixed operation cost
• Contribution calculation


  contribution = Selling price - Variable Cost
• Total Contribution

  Contribution per unit x number of units sold
• Break-Even Output

  Fixed costs / contribution per unit
• Margin of safety


  The amount sales can fall before the break-even point
• Advantages of BE

  Gaining funding - required for business plans

  Setting revenue targets

  Decide appropriate pricing
• Disadvantages of BE

  Doesn't give an insight into chances sales will meet this point

  Data may be unreliable
• Break even output

  Fixed Costs ÷ Contribution