Break-Even
For your exam, you need to know how to calculate the Break-Even point for a business, to make sure that they cover all of their costs.
If a business Breaks Even, it means that they have not made any profit, but they also haven't made a loss.
If a business Breaks Even, it means that they have not made any profit, but they also haven't made a loss.
Things you need to know..
There are a number of key terms that you must know about Break Even. These are:
There are a number of key terms that you must know about Break Even. These are:
- Fixed Costs: These are the costs of a business that will not change, such as the Rent or Insurance. It doesn't matter how many products a business sells, their rent will still be the same, or 'Fixed'.
- Variable Costs: These are costs that change depending upon how many products are made, or sold. For example, a cake maker will need to buy more eggs and milk depending on the number of cakes they make.
- Total Costs: These are the Fixed Costs added to the Variable Costs for a certain number of products. For example, if the rent was £500 and the ingredients per cake cost £50, the Total Cost to make one cake would be £550. The Total Cost to make two cakes would be £600, and so on.
- Revenue: This is another word for 'money in the till'. Revenue is the amount you have received for selling the products. So, if you sold wedding cakes for £100, your Revenue for selling 10 cakes would be £1,000 (i.e. 10 cakes X £100).
Break Even Chart
Try this exam question...flick through the presentation to see how the Break Even Chart develops.