1. Chapter 32: BREAK EVEN

2. TOTAL COST = TOTAL REVENUE
Break Even Point of Production: The level of output at which total costs equal total revenue
TOTAL COST = TOTAL REVENUE

3. 3 Ways of Break-Even Analysis
1. Table of cost and Revenue
2. Graphical method
3. Formula method

4. 1. Table Cost and Revenues
Big loves Fried Chicken. He owns a fried chicken restaurant business. The price of each fried chicken is 2$. His fixed cost is 500$. His variable cost is 1$ per piece.
Now take a look…

5. 1. Table Cost and Revenues
Quantity
Fixed Cost
Variable Cost
Total Costs
Revenue
Profit/(Loss)
500
(500)
100
600
200
(400)
700
400
(300)
300
800
(200)
900
(100)
1000
1100
1200
1400

6. The Graphical Method
This is what a Break Even Graph Looks like.

7. 3rd. The Formula
Break- Even level of output = fixed cost/ Contribution per unit

8. Margins of Safety
Margins of Safety: The amount by which the sales level exceeds break-even level of output
Actually Shows how much sales could fall without making loss.
For Example…

9. Chris owns a Camel business
Chris owns a Camel business. If his break even output is 400 camels, and he has 600 camels,
Then his margin of Safety is 200 Units.
Easy eh?

10. Contribution per unit:
Selling price of a product – Variable costs per unit.

11. HOMEWORK
Page 338 Activity 32.2
Not that much actually.