Slide 1

Your company produces sports T-Shirts.

Name some COSTS that might be incurred for you to produce T-Shirts.

Over Christmas your production facility is closed. Does the company have any COSTS for that period? If so name them.

Break Even Analysis Break Even Analysis

Slide 2

Think of your costs…

Which are VARIABLE, so they are costs associated with the production and which are FIXED, costs that you will have anyway – it does not matter how many T-Shirts you make, the costs will be there!

Put a ‘V’ or ‘F’ next to each

Slide 3

VARIABLE FIXED

Cost of cloth.

Cost of stitching.

Labour to produce a T-Shirt. (Wages)

Power to the machines.

Packaging.

Lighting of the production plant.

Telephone costs

Rent and rates.

Salaries.

Advertising.

Slide 4

You make 100 T-Shirts and sell all of them

You sell these to retail outlets for £6 each

You have VARIABLE costs of £5 each

You have FIXED costs of £100

How much is your TURNOVER?

How much are your VARIABLE costs?

How much are your FIXED costs?

Are you making a profit?

Slide 5

Turnover 100 T Shirt x £6 £600

LESS Variable Costs 100 T Shirt x £5 £500

GROSS PROFIT £100

LESS Fixed Costs £100

NET PROFIT Break Even £0

Break Even: Where total revenues equal total costs

Slide 6

Fixed Costs

Fixed Costs = Costs which remain the same whatever the level of output of the business.

Cos

ts £

Output of T-Shirts

Fixed Costs

Slide 7

Variable Costs

Variable Costs = Costs which vary directly with the output of the business.

Cos

ts £

Output of T-Shirts

Variable Costs

Slide 8

Total Costs

Total Costs = All Costs incurred by the business over a period of time. It is equal to the fixed costs and the variable costs.

Cos

ts £

Output of T-Shirts

Variable Costs

Fixed Costs

Slide 9

Sales / Turnover / Revenue

Revenue = The value of the sales made by the business.

Rev

enue

& C

osts

£

Output of T-Shirts

Variable Costs

Fixed Costs

Slide 10

How to calculate Break Even point

Fixed Costs

Selling price per unit – Variable cost per unitOR

Contribution per unit

Break Even Point =

Slide 11

Calculate the Break even point …

You make 100 T-Shirts and sell all of them.

You sell these to retail outlets for £6 each

You have VARIABLE costs of £3 each

You have FIXED costs of £200

How much is your TURNOVER?

How much are your VARIABLE costs?

How much are your FIXED costs?

Are you making a profit?

Slide 12

How to calculate Break Even

Fixed Costs (£100)

Selling price per unit (£6) – variable cost per unit (£5)OR

Contribution per unit (£1)

Break Even Point =

Break Even Point = 100 T-Shirts

Slide 13

Break Even Chart

Fixed Costs:Advertising, Salaries

Cos

ts a

nd R

even

ues

£

Number of T-Shirts produced

Area of Profit

Area of Loss

Break Even Point

Area of Variable CostCloth, Wages, Packaging

Sales Total Costs

Fixed Costs

Costs=Revenue