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![Page 1: Understand the meaning of the term break even To be calculate the breakeven point To be able to produce breakeven charts.](https://reader035.fdocuments.net/reader035/viewer/2022062801/56649e445503460f94b37ae1/html5/thumbnails/1.jpg)
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Understand the meaning of the term break even
To be calculate the breakeven point
To be able to produce breakeven charts
![Page 3: Understand the meaning of the term break even To be calculate the breakeven point To be able to produce breakeven charts.](https://reader035.fdocuments.net/reader035/viewer/2022062801/56649e445503460f94b37ae1/html5/thumbnails/3.jpg)
Define Breakeven Analysis
Theory behind it
What it can be used for
Breakeven formula
Example
Problem
Conclusion
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Breakeven Analysis- A decision-making aid that enables a
manager to determine whether a particular volume of sales will result in losses or profits
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Made up of four basic concepts
◦ Fixed costs- costs that do not change
◦ Variable costs- costs that rise in proportion to
sales
◦ Revenue- the total income received
◦ Profit- the money you have after subtracting fixed
and variable cost from revenue
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There are two types of costs: Variable costs increase by a step every time
an extra product is sold – energy, labour, materials(eg cost of ice cream cornets in ice cream shop)
Fixed costs have to be paid even if no products are sold rent, business rates, interest on loans, insurance, staff costs e.g. security
eg rent of ice cream shopExamples from your work area?
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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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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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The break-even point =
Fixed costs
(Selling price per unit minus variable cost per unit)
X = F
P - V
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Tom can hire an ice-cream van for an afternoon at a summer fete. The van hire will be £100 (fixed costs) and the cost of cornets, ice cream etc will 50p (variable costs) per ice cream.Tom thinks a sensible selling price will be £1.50.At this price, how many ice-creams must he sell to cover his costs?Calculating this will help Tom to decide if the idea is worthwhile.
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Fixed costs
(Selling price per unit minus variable cost per unit)
Tom: £100
(£1.50 – 50p)= 100
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Lets say you own a business selling burgers
It costs £1.00 to make one burgerThat’s your V or Variable cost
You sell each burger for £2.80That’s your P or price per unit
Your cost for rent, utilities, overhead, etc... is £100,000 per month
That's your F or fixed cost
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V = £1.00 P = £2.80 F = £100,000
X = F /( P – V)X = 100,000 / ( 2.80 - 1 )X = 100,000 / ( 1.80 )
X = 55,555To breakeven you would need to sell 55,555 burgers
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You own a lemonade stand
It costs you £0.05 to make cup of lemonade
You sell your lemonade for £0.25
It cost you £50.00 to make the stand
How many cups of lemonade do you have to sell to breakeven?
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X = F /( P – V)X = 50 / ( .25 - .05 )X = 50/ ( .20 )
X =250
You would need to sell 250 cups of lemonade to breakeven.
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Tom can hire an ice-cream van for an afternoon at a summer fete. The van hire will be £100 and the cost of cornets, ice cream etc will 50p per ice cream.
Tom thinks a sensible selling price will be £1.50.
At this price, how many ice-creams must he sell to cover his costs?
![Page 17: Understand the meaning of the term break even To be calculate the breakeven point To be able to produce breakeven charts.](https://reader035.fdocuments.net/reader035/viewer/2022062801/56649e445503460f94b37ae1/html5/thumbnails/17.jpg)
Tom's ice creams
050
100150200250300350400450
0 100 200 300
Number sold
Co
st/
Re
ve
nu
e £
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Tom's ice creams
050
100150200250300350400450
0 100 200 300
Number sold
Co
st/
Re
ve
nu
e £
Fixed Cost
![Page 19: Understand the meaning of the term break even To be calculate the breakeven point To be able to produce breakeven charts.](https://reader035.fdocuments.net/reader035/viewer/2022062801/56649e445503460f94b37ae1/html5/thumbnails/19.jpg)
Tom's ice creams
050
100150200250300350400450
0 100 200 300
Number sold
Co
st/
Re
ve
nu
e £
Total Cost
Fixed Cost
![Page 20: Understand the meaning of the term break even To be calculate the breakeven point To be able to produce breakeven charts.](https://reader035.fdocuments.net/reader035/viewer/2022062801/56649e445503460f94b37ae1/html5/thumbnails/20.jpg)
Tom's ice creams
050
100150200250300350400450
0 100 200 300
Number sold
Co
st/R
even
ue
£
Sales Revenue
Total Cost
Fixed Cost
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Tom's ice creams
050
100150200
250300350400450
0 100 200 300
Number sold
Co
st/R
even
ue
£
Sales Revenue
Total Cost
Fixed Cost
Loss
Profit
Break-even point
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Monthly expenses- use it to see if your income is more then your expenses
Determine minimum price product can be sold for
Determine optimum price product can be sold for
Calculate effects of marketing programmes on price
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A Breakeven Analysis is a simple tool to determine if you have priced your product correctly
A Breakeven Analysis helps you calculate how much you need to sell before you begin to make a profit.
You can also see how fixed costs, price, volume, and other factors affect your net profit.
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Using the data provided on excel – BEP sheet
- Calculate the breakeven point
- Draw a breakeven chart