Learners should:
● define breakeven – when a business has made enough money through product sales to cover the cost of making the product (no profit and no loss)
● be able to interpret from a break-even chart:
o break-even point
o profit
o loss
o variable costs
o fixed costs
o total revenue
o total costs
o margin of safety
● calculate the breakeven (formula will be given in the assessment)
● analyse and explain the value and importance of breakeven analysis to businesses when planning for success
● analyse and explain the associated risks to businesses of not completing a breakeven analysis
● present given information graphically on a break-even chart
● analyse the effect on the break-even point if sales or (fixed and variable) costs change, and explain the impact of these changes on the business
● define breakeven – when a business has made enough money through product sales to cover the cost of making the product (no profit and no loss)
● be able to interpret from a break-even chart:
o break-even point
o profit
o loss
o variable costs
o fixed costs
o total revenue
o total costs
o margin of safety
● calculate the breakeven (formula will be given in the assessment)
● analyse and explain the value and importance of breakeven analysis to businesses when planning for success
● analyse and explain the associated risks to businesses of not completing a breakeven analysis
● present given information graphically on a break-even chart
● analyse the effect on the break-even point if sales or (fixed and variable) costs change, and explain the impact of these changes on the business
What is the aim of most businesses?
To make a profit
To make a profit
Calculate the break even point for the following business:
FC = £5000 VC = £7 per item SP = £18 ........................ Units or £................................................ |
Calculate the break even point for the following business:
Rent = £20000 Salary = £18000 Raw material costs per car = £2300 Selling price per car = £12000 ........................ Units or £............................................... |
Benefits of break even analysis
- The business knows the fixed and variable costs linked to a product - The business can analyse costs to see if they are too high and can be REDUCED - The business can set the optimum best price for a product - The business can calculate and forecast potential sales revenue - It allows the business to stock or make the most profitable goods - It allows the business to set a margin of safety |
The risks of ignoring break even analysis
- The business does NOT know the costs of production and running costs - The cost of stock or raw materials may be too high - The selling price may be too high, too low or not cover costs - The business does not know how many items it must sell to make a profit - The business may make a loss without realising or knowing why -the margin of safety is unknown |
Value of break even analysis
When would break even analysis be used?
When new business is being set up
when new product is being launched to set realistic production targets to set realistic sales targets to review and analyse past performance |
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Question:
Salma has a good idea for an app but would have to pay to get it developed. Discuss the use of breakeven analysis in helping her plan for a successful business (8 marks)
Salma has a good idea for an app but would have to pay to get it developed. Discuss the use of breakeven analysis in helping her plan for a successful business (8 marks)
Tips:
If asked to disucss the use ofbreakeven analysis, this means explaining the actions someone should take, what information she should obtain and how this information could effect the business decision
To gain 8 marks, you should give an in depth explantion of how breakeven analysis can be used to make the business successful
If asked to disucss the use ofbreakeven analysis, this means explaining the actions someone should take, what information she should obtain and how this information could effect the business decision
To gain 8 marks, you should give an in depth explantion of how breakeven analysis can be used to make the business successful