1. Break Even Charts ch 16 marketing 1 Unit 5
Overview

2. How is the BE chart used and Why
To see at a glance how many products a business must sell to break even. Or the min level of sales to survive
To work out the profit or the loss at any output
Using the margin of safety businesses can see how much output can drop by before they loose money
To show the effect price has on profit/loss
To show how a change in costs effects profits
To see how many units the business must sell before it will achieve a particular profit.

3. Understanding
The min price a business must charge for its product = the total cost of making it. We call this the Break even price.
Revenue = Total costs! so neither a profit or a loss so the company Breaks even.
Total costs are split between fixed costs which stay the same(Hence the continuous straight horizontal line on BE Charts). Variable costs then go up and up depending on the number of products (or Units) the company sells. Units sold are also called output. X axis always
A TY hoodies costs you euro but you sell an output of 1000 units 10 euro each so you break even

4. To start BE Chart
Forercast Sales In units: Are the max products theorectically the business can make and this figure is usually given to you so you know how long the axis should be.
To work out the length of the y axis again use max forecast sales and multiple by the SP.
Next simply draw a horizontal line out from what the Fixed cost in euro s is.
The total revenue line shows you what the total revenue is i.e. the units x the SP by plotting 3 different points on a diagonal line.
You need to plot three points also on the total cost line or the TC line.

5. Margin of safety is a shaded bit on the right of the BE chart which shows business people the area of how much sales can fall by before a loss And the difference between Forecast Sales and the BE P.
The profit at forecast sales is a shaded area at the top of the BE chart which shows the profit when you look at your Forecast Sales in units , go up and then see the figure across from the TC line and the TR line and take them away to see the profit the business makes when its at the planned sales forecast. E.g TR-TC at forecast sales

6. continued For BE you need to work out:
Contribution per unit = Price – Variable Cost
Profit at FS in euro = TR –TC line when at forecast sales in units
BE Point units = FC/ (P-VC)
BE in euro = Ans above x P
Margin of safefty: FS units-BEP units
Work out six Points on the BE chart for TC and TR diagonal lines.

7. TR line formula
TR = 0 xSP= second number of the new point. First number for first point is the actual 0 you used in this formula. E.g (0,0) Is usually the first point cos SP x 0 = 0
BEP units x SP = ? Therefore next point to plot is (BEP units, ?)
FS x SP = ? (FS,?) point 3

8. TC formula Same idea find 3 points and plot them on the BE chart.
0 x VC per unit = TC + FC = ? (0,?) Pt 1
BEP units x VC pu =TC+FC = ? (BEP, ?) Pt 2
FSx VC pu=TC +FC =? (FS,?)
Now draw your two diagonal line since we ve worked out the points to plot. Use graph paper.

9. Quests What are the steps? What are the formulae?
Why do business people use BE charts?