AS Business: Break-even & Profit loss

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  • Created on: 20-03-13 22:52
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Break-Even Analysis
Fixed Costs
Contribution
(Contribution = Cost Price ­ variable cost)
Sales Revenue, Total costs and fixed costs can be plotted on a graph to show the level of break-even
output as well as the level of profits or losses at every possible level of revenue.
They will also show the margin of safety: the amount by which current output
exceeds the level of output necessary to break even.
WEAKNESSES:
The model assumes that costs increase constantly and that firms do not benefit from bulk
buying.
It assumes that the firms sell all its output at a single price, in reality firms offer discounts.
It assumes that all output is sold!
Poor quality data can result in inaccurate conclusions being drawn.
Profit & Loss Accounts (income statements)
These can measure the success of a business and assess the actual performance of the business compared with expectations. It can help with
obtaining loans and enables the managers to plan ahead.
GROSS PROFIT: Revenue ­ Costs of goods sold (Not taking
expenses and overheads into account)

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NET (or OPERATING) PROFIT: Gross profit ­ (Expenses + Overheads)
E.g.…read more

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