Break-even

A break-even analysis

• is used to work out how much a business must produce and sell to pay for all costs associated with a product or service

• is when a business is not making a profit or loss

• is the total of variable and fixed costs

• consists of sales revenue, loss and variable costs

What is the right formula?

• Total Costs = Fixed Costs + Variable Costs

• Break-even point = Total Revenue - Total Costs

• Fixed costs = Total Costs + Variable Costs

• Total Costs = Total revenue - Loss

What is NOT an example of Fixed costs?

• Rent

• Salaries

• Distribution/transport of goods

• Insurance

What are examples of variable costs?

• Raw materials & interest rates

• Performance bonuses & monthly advertisement costs

• Raw materials & performance bonuses

• Interest rates & monthly advertisement costs

The break-even point is

• where total revenue equals total costs

• when total costs equal 0

• when total revenue equals 0

• where number of output equals total costs

Where is the break-even point?

• Output 75, Sales 900, Total costs -1300

• Output 125, Sales 1500, total costs -1500

• Output 150, Sales 1800, Total costs -1600

• Output 200, Sales 2400, Total costs -1800

Fixed costs

• are costs that do not vary with the number of products sold

• are costs that vary, in the short run, with the number of products sold

• are costs that vary, in the long run, with the number of products sold

• do not have to be paid when the business is not making any sales

Variable costs

• are costs that vary directly with the number of items sold or produced

• are also known as overhead costs

• have to be paid whether the business is making any sales or not

• are costs that do not vary directly with the number of items sold or produced

Rent, advertisement, and fuel are part of the:

• Fixed Costs

• Total Costs

• Variable Costs

• Sales output

When a business is making a profit,

• the sales revenue is higher than the total costs

• the total costs are higher than the sales revenue

• the number of output is higher than the total costs

• the total costs are higher than the number of output