Theme 2 - break-even explained - margin of safety

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Break-even
When a business starts, the owner may invest a great deal. Therefore at the start there will be little or no revenue as there are more costs like new machinery and fixtures. Hopefully as the business grows they start to trade which can boost their revenue
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Break-even definition
Break-even is where at a point a business doesn't make a profit nor a loss.
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Break-even formula
Break even = fixed costs /
(selling price - variable costs)
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Break-even calculation example
Answer = 200
calculate the break-even point
Fixed costs £12,000
Variable costs £120
Selling price £180
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Margin of safety explained
Margin of safety is the amount of sales the business can lose before they can make a financial loss. What can a business afford to lose in unit sales.
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Margin of safety formula
Margin of safety = actual sales - break even
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Margin of safety calculation example
Margin of safety = 50
Actual sales 470
Break-even sales of jumpers 420
What is the margin of safety?
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Card 2

Front

Break-even definition

Back

Break-even is where at a point a business doesn't make a profit nor a loss.

Card 3

Front

Break-even formula

Back

Preview of the front of card 3

Card 4

Front

Break-even calculation example
Answer = 200

Back

Preview of the front of card 4

Card 5

Front

Margin of safety explained

Back

Preview of the front of card 5
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