break even michelle hopkinson correctly calculate break even for a business provided correctly...
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Break Even
Michelle Hopkinson
Correctly calculate break even for a business provided
Correctly create break even charts for financial data provided
Discuss the benefits and limitations of break even
In addition some more able learners may be able In addition some more able learners may be able to:to:
Analyse the uses of break even in preparation for assignment
Complete the online quiz on costs (select FINANCE, then COSTS, then top quiz)
Then complete the Breakeven recap sheet
The Margin of Safety (MOS) is the difference between the planned level of sales and the BEP
This helps the business identify the amount of units sales can fall before the business starts to make a loss
(Previous example BEP was 10,000 units)
If the firm planned to sell 12,000 units the MOS would be 12,000 – 10,000 = 2,000 units
More visual Also identifies MOS Can review profit or loss at different output/sales
levels The business can analyse the impact of changing
fixed costs, variable costs, and the sale price to the BEP, profit and loss
The chart also enables the business to view the contribution being made to the fixed costs
0 40 80 120 160 200
Quantity sold
240
200
80
40
120
160
0
Cos
ts/r
even
ue
0 40 80 120 160 200
Quantity sold
240
200
80
40
120
160
0
Cos
ts/r
even
ue
Fixed costs
0 40 80 120 160 200
Quantity sold
240
200
80
40
120
160
0
Cos
ts/r
even
ue
Fixed costs
Total costs
0 40 80 120 160 200
Quantity sold
240
200
80
40
120
160
0
Cos
ts/r
even
ue
Fixed costs
Total costs
Total revenue
0 40 80 120 160 200
Quantity sold
240
200
80
40
120
160
0
Cos
ts/r
even
ue
Fixed costs
Total costs
Total revenue
Break-even point
LOSS
PROFIT
Using the worksheet from the start of the lesson, calculate the BEP
Now, create a break even chart for EACH of your answers - remember to include different unit calculations which you know will show the answer
Quick results Forecast results if SP/FC/VC need to
increase/decrease Little skill needed
A product may have different SP (discounts, trade prices) The Chart does not show the EXACT BEP Useful for limited time as costs/prices change Only as useful as the data included! Does not take into account Economies of Scale Difficult if you sell a range of products
Correctly calculate break even for a business provided
Correctly create break even charts for financial data provided
Discuss the benefits and limitations of break even
Questions?
Recap break even charts Budgets and variances