Break-Even

break even is total cost=total revenue

types of costs

variable costs

• will vary depending of the level of output (eg raw materials)

semi-variable costs

• part of the cost will be variable

• eg wages: fixed hourly rate (fixed) + overtime (variable)

fixed costs

• will not vary no matter what ( rent)

identifing sales

• selling price per unit (price)

• sales value (£)

• sales in volume (quantity, units)

TR= total revenue= quantity sold x price per unit

TS=total sales

• usualy across the year

• expressed in 2 ways: value (sales) or volume (units)

break- even point

break even point = fixed costs / contribution per unit

contribution per unit= selling price - variable cost per unit

total contribution= sales revenue - total variable costs

total variable costs= variabe cost per unit x quantity

if fixed costs increase so do prices

high costs = high prices = a lower BEP

sales or demand increases the margin of safety and profit increases

margin of safety

• number of units sold in surplus of the BEP

• good for planning

PMCT

Planning

• helps budgeting

• helps set prices

• ensures ur charging enough/ not over charging

• plan if u need to push sales so u can break even

• margin of safety is known

Managing

• monitor progress and adapt if needed

• do u need to increase sales volume? increase/ decrease price?

• monitor relationships with suppliers to see if u can/need to showdown outflows with trade credit or trade period

Control

• keep with in ur budget with in costs with in ur control

• motivation for employees: increases productivity and sales

• ensure ur being payed on time/ control inflows

Targets

• set targets or objectives for other teams

• set future budgets easpecialy expenditure

• set profit margins

• looking at possible expansion