Break Even Analysis

Topics: Marketing, Cost, Sales Pages: 2 (431 words) Published: April 16, 2015
BREAK-­‐EVEN
 ANALYSIS
 

 

 
INTRODUCTION
 

 
• Every
 business
 manager
 should
 want
 to
 know
 how
 many
 products
 need
 to
 be
 sold
 or
 services
 
provided
 to
 cover
 the
 total
 costs
 of
 the
 business.
 That
 is
 they
 need
 to
 know
 what
 it
 takes
 to
 break
 
even.
 

 
• If
 a
 business
 cannot
 break-­‐even
 then
 decisions
 need
 to
 be
 made
 to
 correct
 the
 situation.
 

 
• Because
 break-­‐even
 is
 the
 point
 where
 total
 costs
 equal
 total
 revenue,
 anything
 sold
 above
 the
 
break-­‐even
 point
 results
 in
 a
 profit
 being
 made;
 while
 anything
 sold
 below
 break-­‐even
 point
 
results
 in
 a
 loss
 for
 the
 business.
 

 
TOTAL
 COSTS
 

 
• Total
 costs
 are
 made
 up
 of
 two
 main
 types
 of
 costs.
 These
 are:
 

 
-­‐ Fixed
 costs
 
-­‐ Variable
 costs
 

 
Fixed
 Costs
 

 
• Fixed
 costs
 are
 so
 called
 because
 they
 do
 not
 vary
 with
 the
 level
 of
 activity
 or
 output
 
 within
 a
 
given
 range
 e.g.
 For
 rent
 or
 land
 rates,
 it
 does
 not
 matter
 if
 you
 sell
 or
 produce
 no
 products
 or
 
whether
 you
 sell
 or
 produce
 a
 number
 of
 products,
 you
 still
 pay
 the
 same
 amount.
 

 
Variable
 Costs
 

 
• Variable
 costs
 are
 so
 called
 because
 they
 vary
 in
 proportion
 to
 the
 level
 of
 activity
 or
 output.
 If
 
output
 doubles,
 so
 does
 the...
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