1. 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

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

3. 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

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

5. Task
“Try this” pg 106

6. 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

7. Graph
Break even is also shown on a graph:

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

9. 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

10. Task
Exam style questions 2&4 pg 107