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BREAK-EVEN POINTS Part 6

Starter 1. What is the definition of the break-even point?1 mark 2. What 3 pieces of information do you need to calculate the break even point?1 mark 3. What is the formula used to calculate the break-even point?1 mark 4. Your selling price per unit is £23, your variable costs per unit are £7 and your fixed costs are £ Use these to calculate the break-even point. 2 marks Now you will mark each others!

Lesson Objective To show the effect on break-even if revenues or costs change.

The Effect on Break-even if Revenues or Costs change When we calculate the break-even point we do so using estimations:  What we expect the selling price per unit to be.  What we expect the variable price per unit to be.  What we expect the fixed costs to be. There are many reasons why our estimations may prove wrong.

Activity 1

Activity 2 Complete the following: Remember, we will always round up the Break-even point if it is not an exact amount!

Examples The planned selling price of a product is £50. The planned fixed costs of a unit are £1000. The planned variable costs per unit are £20. The expected break-even point (rounded up) is:  £1000 / (£50-£20) = 34 units If our fixed costs increase to £1200, the effect on the break-even point is:  £1200 / (£50-£20) = 40 units If our fixed costs remain at £1000, but our variable costs increase to £30, the effect is:  £1000 / (£50-£30) = 50 units If the costs remain as expected, but we reduce our selling price to £30, the effect is:  £1000 / (£30-£20) = 100 units

Activity 3 – Your turn! a) £1000 / (£80-£30) = £1000 / £50 = 20 units b) £1200 / (£80-£30) = £1200 / £50 = 24 units c) £1000 / (£80-£50) = £1000 / £30 = 34 units d) £1000 / (£50-£30) = £1000 / £20 = 50 units e) Surplus stock to clear + lack of interest at higher price

Activity 3 A) Break-even = = 700 pairs of jeans B) 1000 jeans= (£15 x 1000) – ((£10 x 1000) + £3500) = £15,000 - £13,500 = £1500 profit B) 500 jeans = (£15 x 500) – ((£10 x 500) + £3500) = £ £8500 = -£1000 loss (£ £800 + £1500) £15 – (£4 + £6)

Activity 4 In an earlier activity, you were told: Break-even = = 700 pairs of jeans (£ £800 + £1500) £15 – (£4 + £6)

Answers a) £4000 / (£15-£10) = 800 units b) £4000 / (15 - £12) = 1334 units c) £4000 / (£20-£10) = 400 units

Recap Lesson Objectives: To show the effect on break-even if revenues or costs change. Lesson Objectives: To show the effect on break-even if revenues or costs change.