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Learning objectives
· What is the break-even point of a business?
· How do you calculate the break-even point?
· Why is it useful for businesses to know this
information?
· How do businesses use break-even analysis?
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Slide 3

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Imagine...
The local council has given you permission to run an ice
cream van on the beach. How many ice creams will you
need to sell per week in order to make a profit?
One?
Twenty?
Five hundred?
The answer to this question ­
identifying the point at which
the number of ice creams sold
becomes profitable ­ is the
break-even point.
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Slide 4

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What is the break-even point?
The break-even point is the level of output where an
organization will just cover its costs. When a business
first starts up, its financial objective is likely to be to
break even ­ particularly if it is a small business. If the
business sells more than this, it will make a profit.
The break-even point (BEP) is always
expressed as a number of goods or
services that need to be sold (or the
number of customers) not as an
amount of money. These goods or
services are referred to as units of
production.
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Slide 5

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Break-even analysis
In the case of the ice cream van,
the number of customers it
attracts is a key factor in a
break-even analysis, as people
normally buy one ice cream per
person.
However, a business that sells
in bulk at discount prices, such
as an office supplies company,
may only need a few customers
per day to be profitable.
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Slide 6

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Break-even analysis
Break-even analysis can help businesses to make decisions
about future investments, as it helps them to understand
what their level or volume of activity needs to be in order to
be profitable.
Businesses may use
break-even analysis to
make decisions about
investing for future
activities, for example,
a new product or a
new version of an
existing product.
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