Break Even Michelle Hopkinson  Correctly calculate break even for a business provided  Correctly create break even charts for financial data provided.

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Presentation transcript:

Break Even Michelle Hopkinson

 Correctly calculate break even for a business provided  Correctly create break even charts for financial data provided  Discuss the benefits and limitations of break even In addition some more able learners may be able to:  Analyse the uses of break even in preparation for assignment

 Complete the online quiz on costs (select FINANCE, then COSTS, then top quiz)  Then complete the Breakeven recap sheet

 The Margin of Safety (MOS) is the difference between the planned level of sales and the BEP  This helps the business identify the amount of units sales can fall before the business starts to make a loss (Previous example BEP was 10,000 units)  If the firm planned to sell 12,000 units the MOS would be 12,000 – 10,000 = 2,000 units

 More visual  Also identifies MOS  Can review profit or loss at different output/sales levels  The business can analyse the impact of changing fixed costs, variable costs, and the sale price to the BEP, profit and loss  The chart also enables the business to view the contribution being made to the fixed costs

Quantity sold Costs/revenue

Quantity sold Costs/revenue Fixed costs

Quantity sold Costs/revenue Fixed costs Total costs

Quantity sold Costs/revenue Fixed costs Total costs Total revenue

Quantity sold Costs/revenue Fixed costs Total costs Total revenue Break-even point LOSS PROFIT

 Using the worksheet from the start of the lesson, calculate the BEP  Now, create a break even chart for EACH of your answers - remember to include different unit calculations which you know will show the answer

 Quick results  Forecast results if SP/FC/VC need to increase/decrease  Little skill needed  A product may have different SP (discounts, trade prices)  The Chart does not show the EXACT BEP  Useful for limited time as costs/prices change  Only as useful as the data included!  Does not take into account Economies of Scale  Difficult if you sell a range of products

 Correctly calculate break even for a business provided  Correctly create break even charts for financial data provided  Discuss the benefits and limitations of break even  Questions?

 Recap break even charts  Budgets and variances