Using Break Evens

My notes on break even with an example

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Using Breakeven analysis to make decisions
Contribution is not the same as calculating profit because the fixed
costs aren't subtracted. It is the money made after all variable costs
have been paid for from sales revenue. This money goes towards
paying off the fixed costs.
SALES REVENUE ­ VARIABLE COSTS = CONTRIBUTION
TOTAL CONTRIBUTION ­ FIXED COSTS = PROFIT
Contribution per unit = selling price per unit ­ variable cost per
unit
Total contribution = unit contribution x no of units sold
If total contribution is larger than fixed costs the business is making
profit. If total contribution is lower than fixed costs the business is
making a loss.
EXAMPLE
Fixed costs = £9,000
Variable costs = £1.10 per unit
Selling price per unit = £2.60
Units sold = 14,000
Contribution cost = 2.60 ­ 1.10 = £1.50
Total contribution = 1.50 x 14,000 = £21,000
1. Weekly profit = £3,500 ­ £2,800 = £700
2. Contribution per unit = £10 - £4 = £6
3. Total contribution = £6 x 500 = £3,000
4. Their weekly fixed costs are £2,800 so NO!

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