GCSE Business Studies Unit 2 Developing a Business

Transcript:GCSE Business Studies Unit 2 Developing a Business:
GCSE Business Studies Unit 2 Developing a Business Break-Even Learning Outcomes Students should be able to: calculate break-even both graphically and by formula explain the significance of the break-even point distinguish between fixed and variable costs label a break-even chart analyse a break-even chart calculate the margin of safety and explain its significance for a business Images © thinkstockphotos.co.uk Break-even Break-even is the point where: total sales revenue is the same as total costs a business is neither making a profit nor a loss if sales revenue is greater than the break-even point the business will make a profit Break-even can be calculated by formula or graph Images © thinkstockphotos.co.uk Importance of Break-even Shows the amount of goods needed to be sold in order to cover costs and go on to make a profit Used to set the price of a product Assesses the impact of planned price changes Assesses how changes in fixed and/or variable costs may affect profit Images © thinkstockphotos.co.uk Fixed Costs do not change with output have to be paid regardless of the number of items produced examples of fixed costs include: Rent Rates Insurance One thing to remember fixed costs can change. An example of this is if a firm decides to expand and move to larger premises they will increased rent and rates Images © thinkstockphotos.co.uk Variable Costs do change with output vary according to the number of items produced examples of variable costs include: Raw materials Production wages Transport of goods Images © thinkstockphotos.co.uk Break-Even Formula Images © thinkstockphotos.co.uk Princess Pooches Emily plans to open her own dog grooming business, called Princess Pooches and has asked you to help her work out the break-even point for her business. The fixed costs are £30,000 per year, the selling price per unit is £40 and the variable cost is £15 per unit. Your task – Calculate the break-even point for Emily’s business. Images © thinkstockphotos.co.uk Contribution Images © thinkstockphotos.co.uk Break-even Formula Images © thinkstockphotos.co.uk Costs/ revenue (£) Output (units) How to Draw a Break-even Chart Fixed Costs Images © thinkstockphotos.co.uk Fixed Costs Total costs Add Total Cost Line Costs/ revenue (£) Output (units) Images © thinkstockphotos.co.uk Fixed Costs Total costs Total Revenue Break-even point Add Total Revenue Line Costs/ revenue (£) Output (units) Images © thinkstockphotos.co.uk Fixed Costs Total costs Total Revenue Break-even point Margin of Safety Costs/ revenue (£) Output (units) Current Output Margin