Breakeven Flashcards
What is break - even point?
The number of products needed to be sold in order for the business to cover its costs. At this point it is not making a profit or a loss.
What is the calculation for breakeven?
Breakeven = fixed costs divided by (selling price - variable cost per unit)
What is breakeven always expressed as?
Number of products
What do you do if there is a decimal place in the number of products?
You always round up
A firm sells teddy bears, each bear sells for an average price of £12. Each bear has variable costs of £3 and the businesses monthly fixed costs total £12,000. Calculate the break even point for the business.
Breakeven = £12000 divide by (£12 - £3) Breakeven = £12000 divide by £9 Breakeven = 1334 products
A firm makes and sells mobile phones. Each phone costs £102 to make but retails for £450. The businesses yearly fixed costs are £800,000. Calculate the break even point.
Breakeven = £800000 divide by (£450 - £102) Breakeven = £800000 divide by £348 Breakeven = 2299 products
A business makes gold pens. Each pen has a variable cost of £30 and a selling price of £95. It has monthly fixed costs of £4000. Calculate its breakeven point.
Breakeven = £4000 divide by (£95 - £30) Breakeven = £4000 divide by £65 Breakeven = 61.5 products Breakeven = 62 products
Lisa’s hair salon has the following monthly costs, £120 loan repayment, £300 rent, £400 business rates, £500 salary, £2 for shampoo and conditioner and £1 for cleaning fluid. Her average selling price is £15 Calculate the break even point for the salon.
Total costs = £120 + £300 + £400 + £500 = £1320
Variable costs per unit = £2 + £1 = £3
Total costs = fixed costs + variable costs
Fixed costs = total costs - variable costs
Fixed costs = £1320 - £3 = £1317
Breakeven = £1317 divide by (£15 - £3) Breakeven = £1317 divide by £12 Breakeven = 109.75 products Breakeven = 110 products
What is the margin of safety?
The difference between the actual level of sales/production and the breakeven point.
How do you calculate the margin of safety?
Margin of safety = actual level of sales/production - breakeven point
What are benefits of the margin of safety?
- You can track and calculate profit.
- Allows us to assess your selling price.
- Allows to see how many products over your breakeven point you are.
- Allows to see how many sales you have actually made to how many you need to make.
