 Understand the meaning of the term break even  To be calculate the breakeven point  To be able to produce breakeven charts

 Define Breakeven Analysis  Theory behind it  What it can be used for  Breakeven formula  Example  Problem  Conclusion

 Breakeven Analysis- A decision-making aid that enables a manager to determine whether a particular volume of sales will result in losses or profits

 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

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 shop Examples from your work area?

 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.

 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

The break-even point = Fixed costs (Selling price per unit minus variable cost per unit) X = F P - V

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.

Fixed costs (Selling price per unit minus variable cost per unit) Tom: £100 (£1.50 – 50p) =100

Lets say you own a business selling burgers It costs £1.00 to make one burger That’s your V or Variable cost You sell each burger for £2.80 That’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

V = £1.00 P = £2.80 F = £100,000 X = F /( P – V) X = 100,000 / ( ) X = 100,000 / ( 1.80 ) X = 55,555 To breakeven you would need to sell 55,555 burgers

 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?

X = F /( P – V) X = 50 / ( ) X = 50/ (.20 ) X =250 You would need to sell 250 cups of lemonade to breakeven.

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?

Loss Profit Break-even point

 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

 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.

 Using the data provided on excel – BEP sheet - Calculate the breakeven point - Draw a breakeven chart