Break Even
L1
Break Even is the point at which revenue is the same as costs
Revenue = Total cost
Break Even = Fixed Cost
(Contribution per unit)
Contribution = Selling price - variable cost per unit
Margin of safety = Actual output - break even output
L3
- Assists cash flow forecasting
- Target for new firms
- Motivation for staff
- Margin of safety. (think about a low margin compared to a high one)
- Monitor changes in costs
- Assists 'what if' situations
L4
- It is only a prediction
- Too simplistic doesn’t consider fixed and variable costs changing I.e. economies of scale
- Are all products sold?
- BE charts are designed for a single product firm
- Cannot be used to make decisions in isolation
Break Even is the point at which revenue is the same as costs
Revenue = Total cost
Break Even = Fixed Cost
(Contribution per unit)
Contribution = Selling price - variable cost per unit
Margin of safety = Actual output - break even output
L3
- Assists cash flow forecasting
- Target for new firms
- Motivation for staff
- Margin of safety. (think about a low margin compared to a high one)
- Monitor changes in costs
- Assists 'what if' situations
L4
- It is only a prediction
- Too simplistic doesn’t consider fixed and variable costs changing I.e. economies of scale
- Are all products sold?
- BE charts are designed for a single product firm
- Cannot be used to make decisions in isolation