Break-even analysis (A Level) flashcards

Topic 2.7: Break-even analysis

Price 52, variable cost 31, fixed costs 46,200. Contribution, break-even point and break-even revenue?

Contribution 21 per unit. Break-even 46,200 ÷ 21 = 2,200 units. Revenue 2,200 × 52 = 114,400.

Same product (contribution 21, break-even 2,200 units), budgeted sales 3,000. Margin of safety and net profit?

Margin of safety 800 units (800 ÷ 3,000 = 26.7%). Profit (3,000 × 21) − 46,200 = 16,800; check 800 × 21 = 16,800.

High-low: cost 2,980 at 1,200 machine hours and 4,100 at 2,000 hours. Variable rate, fixed element, cost at 1,700 hours?

Rate (4,100 − 2,980) ÷ 800 = 1.40 per hour. Fixed 4,100 − 2,800 = 1,300. At 1,700 hours: 1,300 + 2,380 = 3,680.

Expected sales 2,500 units; variable cost 26; fixed costs 40,000; target net profit 15,000. Selling price needed?

26 + (40,000 + 15,000) ÷ 2,500 = 26 + 22 = 48.

Contribution 9 per unit. Fixed costs 12,600 up to 2,000 units, rising by 6,300 above that. Break-even points?

12,600 ÷ 9 = 1,400 units (inside the first band). 18,900 ÷ 9 = 2,100 units (inside the second band).

Angle of incidence

The angle between the sales revenue and total costs lines at break-even. Wide: high contribution per unit, so profit grows fast. Narrow: profit rises slowly.

Break-even chart: where do the sales revenue and total costs lines start?

Sales revenue starts at the origin. Total costs starts at the fixed cost figure on the vertical axis, because fixed costs are incurred at nil output.

Assumptions behind a break-even chart

Constant selling price, constant variable cost per unit, fixed costs unchanged within the range shown, and all output sold.

A chart's revenue line passes through (2,000 bikes, 90,000); fixed costs 21,600; break-even 1,200 bikes. Price and variable cost?

Price 90,000 ÷ 2,000 = 45. Contribution 21,600 ÷ 1,200 = 18. Variable cost 45 − 18 = 27.

Semi-variable vs semi-fixed cost

Semi-variable: a fixed base plus a rate per unit (a water bill with a standing charge). Semi-fixed: stays flat, then jumps at set levels (an extra van once orders pass a level).