Lesson Objectives All students will understand Most students will How to calculate break even Most students will Apply these calculations to a context Some students will Understand the limitations of break even analysis Progress Arrow

Break Even Analysis Break even analysis identifies the quantity of sales to cover cost and above which to make a profit

Break Even Calculation Fixed Costs These stay the same regardless of how many products are made e.g. Rent Variable Costs These increase if more products are made e.g. Materials Selling Price per Unit How much a product is sold for

Break Even Calculation Break Even Point = Fixed Costs Contribution (Price – Variable cost per unit)

Task “Try this” pg 106

ACTUAL SALES – BREAK EVEN OUTPUT Margin of Safety The volume by which sales (or expected sales) are above the break even point This allows for unanticipated costs of minor problems Margin of safety = ACTUAL SALES – BREAK EVEN OUTPUT

Graph Break even is also shown on a graph:

Purpose of break even To inform pricing decisions To predict profit To help seek finance from investors To conduct “what if” analysis

Limitations Assumes all costs are known Estimates are not certain – regardless of the level of market research done Prices can fluctuate a great deal in some markets

Task Exam style questions 2&4 pg 107