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Unit 2: Finance for Business – Understand the planning tools businesses use to predict when they will start making a profit Dimitri Malkhazian

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Type on this document Write your name on footer Save As: Breakeven Open Unit 2: Finance for Business Textbook on ilearn, page 42 Answer each question on this page UPLOAD on ilearn

Task: Define the term breakeven. Breakeven occurs when a business has made enough money through product sales to cover the cost of making them. There is no profit and no loss. Task: Calculating break-even point If a product sells for £5, the variable cost is £3 and the fixed cost is £300, what is the break even point? Use the formula to calculate it. Show all working out. Fixed cost/(selling price per unit – variable cost per unit) 300/(5-3)= 300/2= 150 Task: Break-even charts

Task: Why is the fixed cost line horizontal on a break-even chart? Because the price doesn’t change. Task: Which two figures must equal for the business to break even? Total cost and Sales revenue

Unit 2: Finance for Business – Understand the planning tools businesses use to predict when they will start making a profit Dimitri Malkhazian

Break-even chart

Look at the break-even chart and answer the following tasks: 1. What is the break-even point?

Breakeven occurs when a business has made enough money through product sales to cover the cost of making them. There is no profit and no loss. 2. Define break even. When the business makes no profit or loss. 3. Which two figures must be equal for the business to break even?

Total cost and Sales revenue 4. Whys is the fixed cost line horizontal on a break-even chart? Because the fixed cost doesn’t change and stays the same. 5. Explain the loss and profit area. The loss area is below the breakeven points the profit area is higher. 6. A) When the sales volume exceeds 3000, the business will be making a profit. B) If the sales volume is below 3000, the company would be making a loss. 7. Calculate the margin of safety. 5000 – 3000 = 2000 units sold to get more profit. 8. What is the importance of margin of safety? Margin of safety tells you from which point your save and start making profit. 9. How else can break-even be calculated? Formula Break-even point = Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units 10. Explain the benefits and Fixed Cost analysis. Selling Price - Variable Cost

Unit 2: Finance for Business – Understand the planning tools businesses use to predict when they will start making a profit Dimitri Malkhazian

The benefit is that it helps you know how many products to sell to make no loos or profit and the limitations is that the profits need to be spent on the bill.

Break-even formula Calculate the break-even point, using the formula method. Show all the working out. Fixed cost = £10,000 Variable cost = £2.00 per unit Unit sold = 2000 units Price = £6.00...