Homework Complete questions 5a and 5b i) and ii) about the Sony Playstation Will be details on too Due 22 nd Nov

The Break Even Song

Verse 1 Here’s a song to help our learning, About what a business should be earning, To cover all that is has been spending, On it our exam grade is depending,

Chorus So what I’ve been asked to do Is work out what we need in revenue To stop us from making a loss Because when we do it upsets the boss I’m planning our business

Form yourself in to a song writing group of no more than 3. Each group needs to write another verse on a topic from the list. Use the fact sheets to help you. The break-even formula Constructing a break-even graph Contribution Margin of Safety Advantages of break-even Limitations of break-even If you finish, let me know. I’ll collate all the verses in to a song. I also have some exercises for you to do.

Factsheet : Break-even formula Fixed Costs / Contribution per unit = no of units required to break-even Remember that the outcome of the formula isn’t a monetary amount, it’s the number of items the business must make and sell to cover it’s costs

Factsheet: Break-even graph Break-even is the output where total revenue line crosses total costs line Profit is above this point Loss is below this point

Factsheet : contribution Contribution per unit is the sales price per unit minus the variable cost per unit Total contribution is contribution per unit x no of units made & sold Contribution per unit to: 1.Fixed Costs 2.Profit Variable Cost Per unit Sales price per unit

Factsheet : Margin of safety The difference between what is currently being made and what is needed to break-even Current output minus break-even output Positive number good, negative bad! Tells you how much output can fall by before you make a loss

Factsheet : Advantages of Break-Even Simple tool Able to ‘model’ changes, such as increases in costs or reduction in sales price Provides a target/focus for the business owner & staff

Factsheet : Disadvantages of Break- Even It assumes that you sell at the same price There is an assumption that you will sell all that you produce. In reality it is more likely some will be kept in stock so you won’t earn sales income but will have incurred the cost of manufacture The tool assumes that prices will remain the same throughout the period you are looking at This method is only as good as the quality of the research used to gather the information