Preview

Break Even

Good Essays
Open Document
Open Document
1210 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Break Even
Training guide to break even analysis.

What is breakeven analysis?

Break even analysis is a calculation to show at what point you are making no profit or loss, so it is when a businesses total revenue covers total costs so it is to show how much output you will have to produce to cover your total costs, within a business. Break even is usually shown in the form of a graph. To work out the break even point of a business you need 3 important components which are:
1. Fixed costs, which are not usually associated with production- these are costs that are at a set price and will not change if income is high or low e.g. Rent and insurance.
2. Variable costs- these are costs that change depending on amount of use and output of sales and the capacity of production e.g. Electricity, parts and materials.
The fixed costs and the variable costs amount to the total costs.
3. Selling price- The price at which they are going to sell their product or service.
When you have calculated break even and found the point at which it is you can then work out where your margin of safety is. Margin of safety is where a business can see at which point they will start making a loss, so on a break even graph the margin of safety would be at the break even point and above as if they went below the break even point they would start to make a loss.
Below there is a break even graph, this will help you to understand break even. As you can see the break even point is represented with the letter P and it is the total revenue line in the blue and the total costs line in the red that cross to give the break even point. If the business goes below the dotted break even line then they will be making a loss but if they are over the break even line they will be in profit. The straight line in the grey at the bottom represents the fixed costs. www.tutor2u.net The site that the graph is from.

Break evens uses;
1. It can be used to show how much output the business will have to produce to

You May Also Find These Documents Helpful

  • Good Essays

    Cost, Volume and Profit

    • 589 Words
    • 3 Pages

    CVP analysis is performed to calculate the break-even point. The break-even point is where profits equal zero or total expenses equal total revenues. In graphic form, Brewer states, “the break-even point is where the total revenue and total expense lines cross”. (Brewer, 2010, p. 263) Once the break-even point has been determined, it can be determined whether there will be a profit or loss. On the graph, anything to the right of the break-even point will be profit and anything to the left will be loss. In equation form, CVP relationships can be expressed as follows: (contribution format income statement) Profit = (Sales – Variable expenses) – Fixed expenses or (unit contribution margin) Profit = Unit CM x Q – Fixed expenses, where Unit CM is Net operating income = Sales – Variable expenses.…

    • 589 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Healthcare Finance

    • 1240 Words
    • 5 Pages

    Break-even analysis helps to plan and control business by showing break-even point, net profit and net loss areas. As it is mentioned in the graph below, on the break-even point cost is equal to revenue which means there is neither loss nor profit at the intersection of sales line and cost line (Frongello).…

    • 1240 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Break-even point is the point at which total revenue equals total costs or expenses. At this point, there isn’t any profit or loss, it’s the break-even. A business could be turning a large amount of money, but still be making a loss. Knowing the break-even point is helpful in deciding prices, setting sales and preparing a business plan. The break-even point is a useful implement to decide on the organisation’s sales volume, average production costs aswell as sales prices.…

    • 1106 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Business Studies

    • 1190 Words
    • 5 Pages

    In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced). Variable costs are expenses that change in proportion to the activity of a business. Variable cost is the sum of marginal costs over all units produced. It can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost. Urban Fashion will have fixed costs to pay their employee’s wages, rents and rates, insurance and advertisements which the same payment is paid out monthly. Also Urban Fashion will have variable costs which they cannot predict how much items will cost.…

    • 1190 Words
    • 5 Pages
    Good Essays
  • Good Essays

    P6 M4 D1 D3 Done

    • 3316 Words
    • 17 Pages

    c) Break-even point –This is fixed costs divided by unit contribution (the unit contribution is the selling price minus the variable cost per unit). This shows how many products a business needs to produce or sell, along with what services need to be offered, to display the point where they’re neither making a profit or loss. Total revenue equals total cost.…

    • 3316 Words
    • 17 Pages
    Good Essays
  • Good Essays

    Breaking Point

    • 1050 Words
    • 4 Pages

    Break-even is the point at which a business makes neither a profit nor a loss, as the total costs are exactly equal to sales revenue. Break-even is a useful tool in exploring the serviceability of debt by looking at the margin of safety, in a particular business profile. The concept is that certain business costs will be volume orientated, i.e. that they will increase with activity. Certain other business costs will tend to remain fixed or at least almost fixed.…

    • 1050 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Variable Costs- Costs that varies with the level of output or sales.An example of a variable cost would be direct labor costs.…

    • 2032 Words
    • 9 Pages
    Good Essays
  • Good Essays

    Waltham Motors Division

    • 1117 Words
    • 5 Pages

    In order to calculate the breakeven point, we use the following equation and budget data:…

    • 1117 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Chapter 3 Costos

    • 3671 Words
    • 15 Pages

    units, and the sales mix is one unit of Product A and two units of Product B?…

    • 3671 Words
    • 15 Pages
    Satisfactory Essays
  • Good Essays

    | |Such analysis allows the firm to determine at what level of operations it will break even (earn zero profit) |…

    • 9082 Words
    • 37 Pages
    Good Essays
  • Good Essays

    Break Even Analysis

    • 1059 Words
    • 5 Pages

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.…

    • 1059 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Variable costs are made up of cost of goods sold plus sales commissions. Fixed costs are made up of salaries, advertising, administrative expenses, rent, depreciation, and miscellaneous expenses.…

    • 1584 Words
    • 7 Pages
    Good Essays
  • Powerful Essays

    There are tools and techniques that can help owners and managers make decisions. However these decisions are based on purely estimations where the costs and profits will come to a breakeven point. The common breakeven analysis is Cost-Volume-Profit Analysis.…

    • 4001 Words
    • 17 Pages
    Powerful Essays
  • Satisfactory Essays

    To determine the total sales for each item that is required to break even, multiply the selling price by the break even volume. The results are shown:…

    • 786 Words
    • 8 Pages
    Satisfactory Essays
  • Powerful Essays

    2. LITERATURE REVIEW OF “COST VOLUME PROFIT ANALYSIS AS A MANAGEMENT TOOL FOR DECISION MAKING”…

    • 1100 Words
    • 5 Pages
    Powerful Essays