Breakeven Point
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Breakeven Point. When you make a product, you need to know how many you need to make and sell to make money. This critical point is known as the Breakeven Point. It is where you have sold enough items to break even.

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Types of costs
Types of Costs to make and sell to make money.

  • Fixed Costs

    • These remain the same even though production levels may change.

      • Rent, insurance, rates, taxes etc.

  • Variable Costs

    • These are costs that are linked to production and will change when production levels change.

      • Cost of materials, wages, power etc.


Profit loss
Profit / Loss to make and sell to make money.

  • In business you want your income to be larger than your costs – this way you make a profit.


Variable Costs 75+55+25 = to make and sell to make money.$155

Fixed Costs 24000 + 5000 + 75000 = $104,000

Total Income = selling price x number sold

Total Income = 200 x 5000

= $1,000,000


Total Costs = (variable cost per unit x number of units sold) + TFC

Total Costs = (155 x 5000) + 104,000

= 775,000 + 104,000

= $879,000

Profit or Loss ?

Because your income is higher than your total costs – you must have made a profit.

Profit / Loss = total income – total costs

= 1,000,000 – 879,000

= $121,000


Finding how many items you need to sell to breakeven
Finding How Many Items You Need To Sell To Breakeven sold) + TFC

  • Using this method you can work out the minimum number of items that you need to sell to breakeven.

  • You can do it by using formulas and by drawing graphs.

  • The graphing method uses GC.



Marginal Income Per Unit = Selling Price per unit– Variable Cost per Unit

MIPU = 200 – 155

= 45

Number required to Break Even = Total Fixed Costs/ MIPU

B/E = 104000/45

=2311.11 – so 2312 Surfboards


Graphing
Graphing Variable Cost per Unit

  • You can also graph these things – giving a better picture of what is going on.

  • The book shows how to do it by hand – we will use GC for all the graphing.

  • You will need to get used to how to enter the data and then apply this to all questions.



Using the graphic calculator
Using the Graphic Calculator Variable Cost per Unit

  • You need to identify what is being made and call that x. (that’s right algebra!)

  • You use the graphing function

  • Go to GRAPH and hit exe.

  • You will see Y1, Y2 etc.. These are the lines that will be drawn.

  • So you need to convert the question into a form that can be entered into the GC.


The number of items being made is Variable Cost per Unitx.

These are entered into your calculator as Y1 and Y2





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