5.4 - Break-Even
5.4 - Break-Even
5.4 - Break-Even
GCSE BUSINESS –
5.4 – Break Even
Aims and Objectives
Specification Points
• One
Three
• Two
•
3. Revenue
Specification
Forecasting
• you sh o u ld start to n o tice th at a lo t o f p rev io u s co n ten t is co m in g b ack to
us/being revisited this unit
• The beauty of modelling is we can experiment with the inputs and observe the effect on outputs
•T h e n ew s h as b een
Notice the vastly different
filled with graphs
an d m o st o f th e
outcomes in this model
depending on the changes
forecasts
• I’m sure it hasn’t escaped your attention that what has been forecasted, doesn’t often happen in reality .
Break Even
• Break even means:
• “The point at which a business will begin to make a profit from sales as all costs have
been covered.”
• You can see from the examples below, it’s easy to see the “break even point” as the point where
revenue crosses over the total costs line
Quick break even task
• How many units do each of the following need to sell in order to break even?
How many units?
How many units?
Break even modelling task
•O p en “5.4 – B reak E v en A n aly sis” fro m th e sh ared area
• Enter the unit price, fixed costs, variable costs into the spreadsheet
the mobile van, and variable costs work out at £1 per burger sold.
covers all fixed costs. It costs £15 to print and distribute each book.
Problem
• Looking at this example, what is the problem with the graph?
Exactly what
number is this?
910, 920? 917??
Graphs
•D raw in g a g rap h is d efin itely a g o o d id ea. It h elp s u s to :
• Visualise the situation
• Quickly interpret the data
• Come to conclusions quickly
•H o w ev er it:
• Requires us to produce a table of data
• Can be difficult to accurately and exactly read data frompoints on a line
Break Even Formula
• Luckily, we can quickly work out break even using a formula:
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛=
𝑆𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
“The number of units needed to break even is extremely high. They will need to raise
the sale price to break even sooner, because…”
Formula task
• Using the formula, work out the break even point for the following businesses . Always round
UP to the nearest unit.
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛=
𝑆𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
1. A florist buys flowers in bulk at a cost of £7000. They make a range of bouquets that
sell for £25 and it costs £2.50 per bouquet in variable costs to make .
Break even : 312 units.
2. Asmartphone costs £999. The components, construction, packaging and shipping to retailers costs
£400 per phone. £1, 500, 000 was spend on designing the phone.
Break even : 2,505 units.
3. Rumour has it, it cost Bugatti $1.6bn to produce 450 Veyron cars . They each sold for
approximately $2.5 million. Assuming fixed costs were approximately $ 1.25bn and
Break even : 726 units.
variable costs per unit were approximately $777,778 per car, how many would they
have needed to make to break even?
Formula task
• Using the formula, work out the break even point for the following businesses . Always round
UP to the nearest unit.
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛=
𝑆𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
1. A florist buys flowers in bulk at a cost of £7000. They make a range of bouquets that
sell for £25 and it costs £2.50 per bouquet in variable costs to make .
2. Asmartphone costs £999. The components, construction, packaging and shipping to retailers costs
£400 per phone. £1, 500, 000 was spend on designing the phone.
3. Rumour has it, it cost Bugatti $1.6bn to produce 450 Veyron cars . They each sold for
approximately $2.5 million. Assuming fixed costs were approximately $ 1.25bn and
variable costs per unit were approximately $777,778 per car, how many would they
have needed to make to break even?
Exam Question
Exam Question
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛=
𝑆𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Homework
•H av e a read o f th e fo llo w in g fo r n ex t lesso n :
•
https://www.bbc.co.uk/bitesize/guides/z67mpv4/revision/1