2.2.3 Break Even

• Break even chart:


  Break even chart

  A) total sales/revenue

  B) sales

  C) fixed costs

  D) total costs

  E) Quantity of goods

  F) loss

  G) profit

  H) break even point

  
• Break Even calculations:

  • break even output = fixed costs / contribution per unit
  • contribution per unit = selling price - variable costs
  • margin of safety = actual output - break even
  • total costs = fixed costs - variable costs
  • revenue = selling price x units sold
• Break Even:

  • Advantages:
  • able to see how many units to be sold to cover costs
  • helps to set objectives (E.g. Survival)
  • good for new businesses
  • helps to analyse/plan pricing strategies
  • Disadvantages:
  • assumes all units are sold and doesn't take into account waste
  • based on predictions
  • not useful for all businesses