1. 1 Calculating a break-even point Aim: Students to be able to produce a breakeven graph Homework: Complete hand out

2. 2 Keywords – recap last section  Fixed cost  Variable cost  Start up costs  Running Costs  Profit  Total cost  Semi-variable cost  Unit  Revenue

3. 3 TargetLearning ObjectiveOutcomeWho?Keywords  Explain, interpret and use a simple break- even chart Understand why you use a break even graph ALL D (AO1) Previous vocabulary: Running Costs Fixed cost Variable cost Selling Price Revenue New Words: Breakeven Contribution  Construct a simple breakeven chart Interpret a given chart and use it to analyse a situation I can draw and read a breakeven graph from given data MOST C-B (AO2 & 3)  Show understanding of the limitations of a break even chart I can discus the uses of a Breakeven graph SOME A (A04) HW: Prepare notes: Chapter 2

4. 4 The basics of break-even analysis  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

5. 5 The break-even point  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.

6. 6 Using a formula to calculate the break- even point The break-even point = Fixed costs (Selling price per unit minus variable cost per unit) Contribution

7. 7 Applying the formula Fixed costs (Selling price per unit minus variable cost per unit) Tom: $100 ($1.50 – 50p) =100

8. How to do a table Units02550100125150 Fixed costs Variable cost Total cost Selling price 8 Selling Price1.5 Variable cost0.5 Fixed cost100

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10. 10 Activity: 3.2.1 – draw the breakeven graph  Doc. Creating a breakeven chart

11.  Doc. Interpreting a breakeven chart 3.2.3  Doc BE Test2 11

12. 12 Margin of safety  Producing more than the breakeven point.  It is useful to know how much sales can fall before loss is being made.

13. 13 Identifying the break-even point Loss Profit Break-even point

14. 14 Contribution:  It can be increased by increasing selling revenue  It can be increased by reducing variable costs per unit  It is not the same as profit (fixed costs haven’t been subtracted)  An increase in contribution per unit raises the potential profit