1. Break Even Analysis
AS Business Studies

2. Aims and Objectives Aim: Understand contribution Objectives:
Define contribution and break even
Explain the importance of break even
Analyse contribution and break even figures

3. Starter
If a business is breaking even, what does this mean? ?

4. Break Even Definition
When a business is just earning enough sales revenue to pay its total costs.
It is not making a profit, nor is it making a loss.

5. Why is Break Even Important?
Discuss in your group why knowing the break even point may be important for businesses and entrepreneurs.

6. Why is break even important?1
Important for entrepreneur to aim for. 2
If business can break even early, there is potential to make early profits. 3
Banks and lenders will want to know, as the longer it takes to break even, the greater the risk 4
Important decision making tool which can be used by managers to develop strategies

7. Contribution
Difference between sales revenue and variable costs of production.
It is the surplus made after all variable costs have been paid for from sales revenue. This surplus goes towards paying fixed costs.

8. Contribution Per Unit
Difference between the selling price of one unit and the variable cost of producing one unit.
Selling Price Per Unit £8.99
Variable Cost Per Unit £4.00
Contribution Per Unit = £4.99
Calculate for the five businesses.

9. Total Contribution
Contribution Per Unit x Number of Units Sold or Number of Customers
Can be used to calculate profit:
Total Contribution – Fixed Costs
Calculate Total Contribution and Profit for the five businesses.

10. Methods of Increasing Contribution
How could a business increase its contribution figures to make a higher potential profit? Discuss
Increase the selling price per unit
Reduce variable costs per unit.

11. Break Even
Break Even Level of Output: this is the level of output or the amount of customers that earns enough revenue to cover total costs.
No profit and no loss is made.
Break Even = Fixed Costs of Business
Contribution Per Unit

12. Break Even
Calculate for the five businesses.

13. Finance Questions Speed Revise Questions 13 minutes Peer Assess
Cash Flow
Contribution Calculating
Calculating Profit

14. What is meant by the term cash flow? (2 marks)