| What is the Break Even Level of Output? | -This is the amount of Output needed to have the Total Revenue = Total Costs
-So the Business isn't making a Profit or Loss |
| Why is the Break Even Point Important? | -If a Business reaches this Point then it can make a Profit
-Risk of Losses is Linked with Break-Even Output
-Lower Break even Point means Lower Risk for the Business
-Going above the Break-Even Point can give the Business a Chance to Obtain Finance through Retained Profits |
| What is the Formula for Break Even Points in Units? [BEU] | -Break Even Point in Units = Fixed Costs / [Sales Price per Unit - Variable Cost per Unit] |
| What is the Formula for Break Even Point in Costs/Revenue | -Break Even Point in Costs = Break Even Point in Units x Sales Price |
| >What is the Formula for Contribution per Unit? | -Contribution = Sales Price per Unit - Variable Cost per Unit
[This is Gross Profit, but with only 1 Unit] |
| Jason Chung has a Stall for 50 Pounds a Day
-He Buys Bread for 1 Pound, and Sells it for 2.50
-How many Pasties until he's Broken Even? | -Find out the Contribution --> 2.50 -1 = 1.50 Pounds
-Then Substitute into the Break Even Formula:
-50 / 1.50 = 34 Units |
| What happens to the Break Even Point and the Contribution if the:
1. Higher Selling Price
2. Lower Selling Price
3. Higher Variable Cost
4. Lower Variable Cost
5. Higher Fixed Cost
6. Lower Fixed Cost | 1. Break Even Point is Lower, and the Contribution is Higher
2. Break even Point is Higher, and the Contribution is Lower
3. Break Even Point is Higher, and the Contribution is Lower
4. Break Even Point is Lower, and the Contribution is Higher
5. Break Even Point is Higher and the Contribution has No Change
6. Break Even Point is Lower and the Contribution has No Change |
| How can you Reduce the Break Even Output? | -Making the Selling Price as High as it can Be
-Negotiating the Price for your Raw Materials to be Lower
-Making sure Fixed Costs is Lower, by again Reviewing |
| What are the Benefits of a Break Even Analysis? | -Sees how long it will take until Profit can Begin
-Entrepreneur and Finance Providers can see the Risk of the Business Idea
-Determines the Price of your Product
-Visualises the Importance of keeping Fixed Costs at a Minimal
-They are Quick and Easy to do
-Helps sets Targets |
| What are the Disadvantages of a Break Even Analyses? | -Can be Unrealistic, because not all Products are Sold at the same Selling Price and at Different Levels of Output
-Sales aren't going to be the Same as Output - Stock may just Build up or being Wasted
-Variable Costs aren't always the Same, it can be Smaller or Bigger
-If you sell more than 1 Product then enjoy
-Planning Aid, not a Influencer of Decisions |
