GRADE BOUNDARIES

DISTI NCTI ON * = 90% +DISTI NCTI ON = 80 – 89%MERIT = 70 – 79%PASS = 60 – 69%FAI L = BELOW 60%

Exam Results

BREAK-EVEN POINTS

Part 5

Starter – Formula recap

What is missing from the following formulae?

_______ = Number of Sales x Price Per Unit

Total Costs = Fixed Costs + _____________

Profit = Revenue - __________

REVENUE

VARIABLE COSTS

EXPENDITURE

Lesson Objective

To be able to define the meaning of the Break-even point.

To be able to calculate the break-even point.

Defining Break-even

What does Break-even mean to you?

Obviously a business wants to make a profit, and not a loss, .

At the very least, they want to break even.

Break-even happens when costs = revenue.

Activity 1

1. £12,000 - £10,000 = £2000 Profit2. £10,000 - £12,000 = -£2000 Loss3. £12,000 - £12,000 = £0 Break-even4. £15,000 – (£10,000 + £6000) = -£1000 Loss5. £25,000 – (£13,000 +£12,000) = £0 Break-

even

Calculating the Break-Even Point

A business will want to know how many products it will need to sell to break even and cover its costs.

What would we need to know to work out the break-even point?

The selling price of one unit The variable cost of one unit The fixed costs

The formula to work out the break-even point is:

Break-Even Point =

Fixed Costs

Selling price per unit – variable cost per unit

How does this all work?

E.g. If I make boxes and the variable cost is 50p, and then I sell them for £2.50, I will be making a £2 contribution.

The next step is to find out how much the fixed cost are and how many units I need to sell in order to pay for these fixed costs.

E.g. My fixed costs are £1000, and with a £2 contribution from each box, I must sell 500 to pay off the fixed costs.

I have hit the BREAK-EVEN POINT!!!

I have paid off all the costs, but not making a profit or a loss.

All together now…

Example: It costs me £30 in materials and wages to make a wardrobe.

I sell wardrobes for £80 each.

My rent and office salaries come to £1000.

Break-even =

= 20 wardrobes to break-even

£1000

£80 - £30

Activity 2

My selling price is £100 per unit.My variable costs are £60 per unit.My Fixed costs are £400.

1. Work out the break-even point.2. How much profit or loss will I make if I sell the

following?Number

soldSales

RevenueFixed costs

Variable costs

Total costs

Profit/loss

5

7

11

15

Activity 3

A) Break-even =

= 700 pairs of jeans

B) 1000 jeans = (£15 x 1000) – ((£10 x 1000) + £3500) = £15,000 - £13,500

= £1500 profit

B) 500 jeans = (£15 x 500) – ((£10 x 500) + £3500) = £7500 - £8500

= -£1000 loss

(£1200 + £800 + £1500)

£15 – (£4 + £6)

Recap

1. What is the definition of the break-even point?1 mark

2. What 3 pieces of information do you need to calculate the break even point?

1 mark

3. What is the formula used to calculate the break-even point?1 mark

4. Your selling price per unit is £23, your variable costs per unit are £7 and your fixed costs are £12000. Use these to calculate the break-even point.

2 marks

Now you will mark each others!

Lesson Objectives:

• To be able to define the meaning of the Break-even point.

• To be able to calculate the break-even point.

Extension

Go to www.businessstudiesonline.co.ukClick activities & BTEC First activitiesScroll down to Unit 3 – Break evenChoose an activityOrGCSE – topics – finance – Break even –

choose tasks