Page 201 - BA2 Integrated Workbook - Student 2017
P. 201
Short-term decision making
2.1 Breakeven point
An important concept for decision-makers is breakeven.
At a level of zero sales, the company’s total contribution will be zero therefore
they will make a total loss equal to the level of their fixed costs.
As sales revenues grow, the contribution will grow and will start to cover the fixed
costs. Eventually a point will be reached where neither profit nor loss is made, this is
the breakeven point. At this point the total contribution must exactly match the fixed
costs. Any additional contribution made above this level will constitute profit.
Fixed costs
Breakeven point in units = —————————
Contribution per unit
10,000
Breakeven point in units = ————— = 250 units
(120 – 80)
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