Business Studies – 4.4.3 Break-even analysis | e-Consult
4.4.3 Break-even analysis (1 questions)
Login to see all questions.
Click on a question to view the answer
Answer:
Calculation:
Break-Even Output = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
In this case:
- Fixed Costs = £2,000
- Selling Price per Unit = £7
- Variable Cost per Unit = £3
Therefore:
Break-Even Output = £2,000 / (£7 - £3) = £2,000 / £4 = 500
The break-even output is 500 units.
What this means for the business:
- Profitability: The business will not make a profit or a loss if it sells 500 units.
- Sales Target: The business needs to sell at least 500 units each month to cover all its costs.
- Risk: If the business consistently sells fewer than 500 units, it will incur a loss.
- Decision Making: This information is crucial for making decisions about production levels, pricing strategies, and overall business viability. The business needs to focus on selling more than 500 units to become profitable.