P6 U2 Notes Essay

Submitted By rednireh
Words: 379
Pages: 2

The term break-even is used to describe the point at which the businesses costs equal that of their revenue. The break-even point is calculated by dividing the fixed costs by the contribution per unit. To work out the contribution per unit you should use the following formula, selling price-variable costs.
The break-even point can change with different scenarios examples of this are:
Fixed costs increasing
The selling price goes down
Variable costs decrease
Contribution goes up
When the fixed costs increase obviously the break-even point will increase as well because your expenditure has gone up. When the selling price goes down the break-even will increase because you’re making less money on the product. When the variable costs decrease the break-even point will also decrease because you’re expenditure has gone down. When the contribution goes up the break-even will then decrease because you’re selling more of the product.

Number of T-Shirts sold 0 2000 4000 6000
Sales Revenue £0 £56000 £112000 £168000
Fixed Costs £80000 £80000 £80000 £80000
Variable Costs £0 £24000 £48000 £72000
Total Cost £80000 £104000 £128000 £152000

Fixed Costs: £80,000 Selling Price: £28 Costs: 12
Selling Price £28 – Variable Costs £12 = £16
80,000 divided by 16 = 5000

Some may ask what is the relevance of determining the breakeven point for a…