Business - Unit 5: Finance - 5.4
- Created by: TabithaP2019
- Created on: 23-10-19 19:19
View mindmap
- 5.4 - Break-even
- Break-even
- When total costs equals the revenue and profit is £0
- Break-even point = FC / contribution per unit
- Contribution per unit = price per unit - variable cost per unit
- Calculated as a forecast and represented in a graph
- Margin of safety
- The amount by which actual sales are greater than break-even sales
- Margin of safety = actual sales - break-even sales
- Limitations of break-even analysis
- Only a forecast and prediction so it does not account for external factors e.g. competitor activity
- Assumes that price remains the same throughout output
- Cost of materials or suppliers may change
- A price increase does not always lead to an increase in revenue - they may lose customers due to higher prices so sales may fall
- Needs updating often
- Uses of break-even analysis
- Needed to plan their price etc. based on sales level
- Useful when applying for loans - necessary part of business plans
- Make judgement about price and costs e.g. if costs are too high
- Used to find expected profit to plan about dividends & expected profit
- Shows margin of safety and the impact of external changes on financial health
- Link to break-even graph website
- Break-even
Similar Business Studies resources:
Teacher recommended
Comments
No comments have yet been made