Download presentation

Presentation is loading. Please wait.

Published byKaitlyn Yep Modified over 3 years ago

1
1

2
Topic 5.3 (SL)

3
* Break-even analysis is a method for finding out the minimum level of sales necessary for a firm to just start to make a profit

4
* The level of output at which total sales revenue is equal to total costs of production * When costs are greater than revenue the firm makes a loss * When costs are less than revenue the firm will make a profit * What happens when costs = revenue? The firm will just break even

5
* Fixed costs must be paid regardless of the level of output * Variable costs increase with output but at a constant rate, so if 1 unit cost £5 then 10 units will cost £50 * Every Unit of output produced is sold * Selling price remains constant regardless of units sold

6
* 3 Methods * Using a table showing revenue and costs over a range of output levels * Using a formula * Using a graph

7
00500 115505 2305010 3455015 4605020 5755025 6905030 71055035 81205040 91355045 1015050 111655055 121805060 Units of output Sales Revenue Fixed Costs Variable Costs Total Costs Profit (000’s ) (000’s) (000’s) (000’s) (000’s) (000’s)

8
* Contribution per unit = selling price – direct cost per unit * This shows the amount that each unit contributes towards fixed costs * Break even = Fixed Costs $) Contribution per unit ($)

9
Sales Revenue/Costs Units of output 0 0 50 100 150 200 2000 4000 6000 8000 10000 12000 Total Revenue Total Costs Fixed Costs Break Even Point Break even output

10
Based on: * costs * prices * production/sales levels

11
Break-even quantity (BEQ) The level of sales or output where costs equal revenue and the firm is therefore making neither a loss nor a profit.

12
* Break-even revenue (BER) The level of sales revenue being earned by the firm at the break-even level of output. * Break-even point (BEP) The position where TC and TR lines cross.

15
Step 1 Extract the data Step 2 Calculate the BEQ Step 3 Fix the X Axis (quantity/capacity) Step 4 Fix the Y Axis (revenue and costs) Step 5 Plot the TR Axis Step 6 Add the FC point Step 7 Add the TC Line

16
FIRST – work out BEQ * FC £480,000 per month. * VC: £60 per unit * Price: £120 per unit

17
* Total Revenue(TR) = Number of items sold x their price * Total costs (TC) = FC + VC(x) * At break-even TR = TC or P(x) = FC + VC(x) * So BEQ = FC/(P - VC) Note: P = price; x = quantity

18
* The equation BEQ = FC/(P - VC) $480,000 per month / ($120 - $60 per unit) = $480,000/£60 = 8,000 units per month

19
* If you are given a maximum capacity, use that figure. * If not, double the break-even quantity is a good guide figure, or 16,000 units in this case.

20
* In this case the maximum revenue is 16,000 x £120 = £1.92 million (price per unit x maximum possible sales).

22
FC

24
* Add labels to the two axes and give the chart a title. * Marks are awarded for this finishing touch.

Similar presentations

Presentation is loading. Please wait....

OK

Break Even Analysis.

Break Even Analysis.

© 2018 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on non agricultural activities in antigua Ppt on newton first law of motion Ppt on statistics in maths what does commutative mean Ppt on 5g technology Ppt on conservation of natural vegetation and wildlife Related ppt on dna computing in security Free ppt on moving coil galvanometer to ammeter Ppt on bond length of hbr Ppt on vision and mission of infosys Ppt on abo blood grouping experiment