This lesson will be about...

BREAKEVEN TEST & REVIEW

What is Sales Revenue?

www.njhunter.co.ukNO IDEAI NEED HELP

NEVER HEARD OF IT

OKI CAN DO THIS WITH SUPPORT

SOME GUIDANCE NEEDEDNEARLY AT MY TARGET

GOT IT!VERY CONFIDENT

WILL HIT MY TARGET GRADE

EXCEED TARGET

Success Criteria< C Define, describe and calculate Breakeven using the formula.

C > Calculate BE using the formula AND a graph. Show your workings out, and justify your choice

B > Complete the what if scenarios (additional calculations that expand knowledge)Suggest ways in which profits could be increased using theory knowledge

A > QOWC and SPAG

LEARNING OBJECTIVESExplore breakeven and how to shift the breakeven point

Breakeven –

Starter - fill in the gaps on the table

www.njhunter.co.ukBy the end of the lesson

I can calculate breakeven using the formula a table

method and create a graph.

The Formula

• Contribution = Unit Price - Variable Unit Cost• Break Even = Fixed Cost / Contribution

Lets calculate this together....

www.njhunter.co.ukActivity 1 – Map Breakeven

Sandra runs a nail bar in Halifax. She has to pay rent & staffsalaries which total £2400 per year.She paints 65 nails a month and her variable costs are £2.50.Current prices for a set of nails is £20.

A) draw a break even chart for SandraB) What is her break even point?C) What could Sandra do to improve her situation and make her break even point lower?

(up in £250 – across in 50’s)

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• Answer 137.14 (138 nails)

www.njhunter.co.uk Activity 2• Peter runs a community centre in a small village out of town. His rent for this is

£500 per month.He also has staff costs which are £200 a month. His variable costs are about £1 per person and this includes a complimentary drink on arrivalwith a biscuit. Peter charges £3.00 entry fee per adult. Peter currently has 200 locals who are members who attend per month ona regular basis.

A) draw a break even chart for PeterB) What is her break even point?C) Does Peter make a profit or loss?D) What should Peter do to improve his situation? (Offer at least 3 suggestions)Extension - impacts on his business after your suggestions have beenimplemented.E) is this break even accurate? Why not?

• (up in 100’s across in 50’s)

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Break-even is an excellent method of analysing a business.

It is cheap to carry out and it can show the profits/losses at varying levels of output.

Due to its simplicity a new business will often have to present a break-even analysis to its bank in order to get a loan.

‼ It assumes that everything produced is sold; often not all output will be sold.

‼ It assumes that all of the output is sold at the same price, often a business will have to lower its price in order to increase its sales

Advantages & Disadvantages*

What factors can cause a shift in the break even

point?

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• Higher prices might mean fewer sales to break-even but those sales may take a longer time to achieve.

• Lower prices might encourage more customers but higher volume needed before sufficient revenue generated to break-even

Factors shifting Breakeven Point.

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• Allocate the sales and marketing effort to get you to the point you need to be.

• Able to watch expenses to minimise losses. (A few really bad months can wipe out previous profit.)

• Knowing the elements of break-even allows you to manage the costs.

Why do we use break-even?

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• Lower direct costs • Cut Expenses• Raise Prices

Ways to Lower Break-Even