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1 Calculating a break-even point Aim: Students to be able to produce a breakeven graph Homework: Complete hand out
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2 Keywords – recap last section Fixed cost Variable cost Start up costs Running Costs Profit Total cost Semi-variable cost Unit Revenue
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3 TargetLearning ObjectiveOutcomeWho?Keywords Explain, interpret and use a simple break- even chart Understand why you use a break even graph ALL D (AO1) Previous vocabulary: Running Costs Fixed cost Variable cost Selling Price Revenue New Words: Breakeven Contribution Construct a simple breakeven chart Interpret a given chart and use it to analyse a situation I can draw and read a breakeven graph from given data MOST C-B (AO2 & 3) Show understanding of the limitations of a break even chart I can discus the uses of a Breakeven graph SOME A (A04) HW: Prepare notes: Chapter 2
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4 The basics of break-even analysis Businesses must make a profit to survive To make a profit, income must be higher than expenditure (or costs) Income$50,000 Costs $40,000 Profit $10,000 Income$50,000 Costs $60,000 Loss $10,000
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5 The break-even point Variable + fixed costs = total costs When total costs = sales revenue, this is called the break-even point, eg total costs = $5,000 total sales revenue = $5,000 At this point the business isn’t making a profit or a loss – it is simply breaking even.
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6 Using a formula to calculate the break- even point The break-even point = Fixed costs (Selling price per unit minus variable cost per unit) Contribution
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7 Applying the formula Fixed costs (Selling price per unit minus variable cost per unit) Tom: $100 ($1.50 – 50p) =100
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How to do a table Units02550100125150 Fixed costs Variable cost Total cost Selling price 8 Selling Price1.5 Variable cost0.5 Fixed cost100
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10 Activity: 3.2.1 – draw the breakeven graph Doc. Creating a breakeven chart
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Doc. Interpreting a breakeven chart 3.2.3 Doc BE Test2 11
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12 Margin of safety Producing more than the breakeven point. It is useful to know how much sales can fall before loss is being made.
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13 Identifying the break-even point Loss Profit Break-even point
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14 Contribution: It can be increased by increasing selling revenue It can be increased by reducing variable costs per unit It is not the same as profit (fixed costs haven’t been subtracted) An increase in contribution per unit raises the potential profit
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