Business Studies – 4.4.3 Break-even analysis | e-Consult
4.4.3 Break-even analysis (1 questions)
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1. Calculate the break-even point in units:
Break-even point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
Break-even point (units) = £200 / (£8 - £3)
Break-even point (units) = £200 / £5
Break-even point (units) = 40 units
2. Calculate the break-even point in pounds:
Break-even point (pounds) = Break-even point (units) x Selling Price per Unit
Break-even point (pounds) = 40 units x £8/unit
Break-even point (pounds) = £320
3. How the break-even point is useful for increasing the selling price:
- The break-even point shows the minimum number of cakes the bakery needs to sell to cover all its costs.
- If the bakery owner wants to increase the selling price, the break-even point will also increase.
- The owner can use this information to assess the potential profitability of a price increase. They can calculate the number of cakes they need to sell at the new price to achieve a profit target.
- If the new break-even point is achievable, the price increase is likely to be beneficial. If the new break-even point is too high, the price increase may not be worthwhile.