Break even

• Profit


  Selling at a value above your costs
• Revenue


  The value of sales over a period of time
• Revenue


  • 500 items a day at £1 each = £500 revenue for the day
• Contribution


  Sell pen @ £2.50 each, Plastic to manufacture = £1.00 each pen, Planning to sell 1,000 units = total sell £2,500, Variable: £1.00 per unit = £1,000 in total, Contribution: £1.50 per unit = £1,500
• Fixed Costs


  Do not vary with output, only change in the long run (e.g. rent, management salaries, interest charges)
• Variable Costs


  Costs that vary in direct proportion to changes in output (e.g. raw material, fuel, labour)
• Semi-Variable Costs


  Costs that contain both fixed and variable elements (e.g. telephone charges with a fixed standing charge plus a variable rate)
• Profit


  Total Revenue - Total Cost
• Profit


  • Total Revenue £5,600,000, Fixed Costs £360,000, Variable Costs £2,400,000, Total Costs £2,760,000, Profit £2,840,000
• Contribution


  The difference between the income generated from sales and the variable costs of producing the goods to generate those sales
• Contribution per unit


  Selling Price per unit - Variable Costs per unit
• Direct Costs


  Costs that arise specifically from the production of a product or the provision of a service (e.g. components, copyright payments, licence fees)
• Overheads/Indirect Costs


  Costs not directly related to production (e.g. employing the secretary or receptionist, advertising costs)
• Gross Profit


  Revenue minus the costs of selling the products or service
• Operating Profit


  Total profit from the business's trading activities before taking account of how the business is financed
• Net Profit

  What is left after all the costs of a business have been taken from its revenue
• Break-even Point

  Where the total costs are the same as the revenue
• Break-even Output

  The minimum sales required to start making profits
• Margin of Safety

  The difference between the actual level of output/sales and the break-even output