1. Break-Even
Year 12 Business

2. What is Break-Even You tell me…
It is the level of output or production at which a businesses sales generate jut enough revenue to cover all its costs of production.

3. Using Break-Even to Make Decisions
To help to decide whether the business idea will be profitable and whether it is viable
To help decide the level of output and sales necessary to generate a profit
Break-even analysis can be used to help support an application for a loan

4. But wait…there’s more…
To assess the impact of changes in the level of production on the profitability
To assess the effects of different prices and levels of cost on the potential profitability of the business

5. Question
Assume you are an entrepreneur and your break-even forecast shows that you aren't going to make diddly squat in the first year of trading. Would you abandon the idea???
How about short term or long term?
What would the impact be of this was to continue?

6. Contribution It is an important part of the break even analysis
Contribution is calculated by –
Contribution = revenue – variable costs
Once you have your contribution, businesses use it to pay the fixed costs
Once that has been paid anything left over is profit

7. Contribution Revenue From Sales Less Variable Costs Gives Contribution
Used to pay
Fixed Costs
Profits
Than left with

8. Contribution Definition:
Is the difference between sales revenue and variable costs; it is used to pay fixed costs and to provide profits

9. Calculating the Break Even Point
An entrepreneur wishing to calculate break-even point will require the following information;
The selling price of the product
The variable cost of producing a single unit
The fixed costs associated with the product
Break-even = fixed costs/selling price per unit – variable cost per unit Or
Break-even = fixed costs/contribution per unit

10. Example How many meals would I have to sell in order to break even
Type of Cost or Revenue Amount
Average Selling Price of a Meal £60
Variable Costs per meal (ingredients, Fuel, Wages)
£35
Monthly Fixed Costs (rent and rates) £10,000

11. A Break Even Chart