Slide 1 Your company produces sports T-Shirts. Name some COSTS that might be incurred for you to produce T-Shirts. Over Christmas your production facility is closed. Does the company have any COSTS for that period? If so name them. Break Even Analysis

Slide 2 Think of your costs… Which are VARIABLE, so they are costs associated with the production and which are FIXED, costs that you will have anyway – it does not matter how many T-Shirts you make, the costs will be there! Put a ‘V’ or ‘F’ next to each

Slide 3 VARIABLEFIXED Cost of cloth. Cost of stitching. Labour to produce a T- Shirt. (Wages) Power to the machines. Packaging. Lighting of the production plant. Telephone costs Rent and rates. Salaries. Advertising.

Slide 4 You make 100 T-Shirts and sell all of them You sell these to retail outlets for £6 each You have VARIABLE costs of £5 each You have FIXED costs of £100 How much is your TURNOVER? How much are your VARIABLE costs? How much are your FIXED costs? Are you making a profit?

Slide 5 Turnover100 T Shirt x £6£600 LESS Variable Costs100 T Shirt x £5£500 GROSS PROFIT£100 LESS Fixed Costs£100 NET PROFITBreak Even£0 Break Even: Where total revenues equal total costs

Slide 6 Fixed Costs Fixed Costs = Costs which remain the same whatever the level of output of the business. Costs £ Output of T-Shirts Fixed Costs

Slide 7 Variable Costs Variable Costs = Costs which vary directly with the output of the business. Costs £ Output of T-Shirts Variable Costs

Slide 8 Total Costs Total Costs = All Costs incurred by the business over a period of time. It is equal to the fixed costs and the variable costs. Costs £ Output of T-Shirts Variable Costs Fixed Costs

Slide 9 Sales / Turnover / Revenue Revenue = The value of the sales made by the business. Revenue & Costs £ Output of T-Shirts Variable Costs Fixed Costs

Slide 10 How to calculate Break Even point Fixed Costs Selling price per unit – Variable cost per unit OR Contribution per unit Break Even Point =

Slide 11 Calculate the Break even point … You make 100 T-Shirts and sell all of them. You sell these to retail outlets for £6 each You have VARIABLE costs of £3 each You have FIXED costs of £200 How much is your TURNOVER? How much are your VARIABLE costs? How much are your FIXED costs? Are you making a profit?

Slide 12 How to calculate Break Even Fixed Costs (£100) Selling price per unit (£6) – variable cost per unit (£5) OR Contribution per unit (£1) Break Even Point = Break Even Point = 100 T-Shirts

Slide 13 Break Even Chart Fixed Costs: Advertising, Salaries Costs and Revenues £ Number of T-Shirts produced Area of Profit Area of Loss Break Even Point Area of Variable Cost Cloth, Wages, Packaging SalesTotal Costs Fixed Costs Costs=Revenue