Break-even: the point at which neither a profit nor a loss is made
Break-even in units of output: fixed costs (£) / contribution per unit (£)
To use break-even, we need to know: selling price (per unit), costs of the product (variable costs per unit and overhead costs and whether they are fixed or variable), limitations such as max production capacity and max sales
Calculation method: quick to use and can see the effect of diffferent cost structures on break-even point
Table method: shows the amount of fixed and variable costs, sales revenue and profit at different levels of production
Graph method: for making presentations as it shows it in a visual form the relationship between costs and sales revenue and the amount of profit/loss at different levels of production
Calculation Method
Selling price per unit - variable costs per unit = contribution per unit
Fixed costs (£) / contribution per unit (£) = break-even point in units of output
Table Method
Columns: units of output, fixed costs, variable costs, total cost, sales revenue, profit/loss
Total cost = fixed costs + variable costs
Profit/loss = sales revenue - total cost
Graph Method
Horizontal axis: units of output
Vertical axis: costs and revenues
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