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Chapter 14
Break even analysis
3.1 The break-even point
This is the point at which profits (or losses) are zero.
Total fixed costs will
Total fixed costs include both production
Break-even units = –––––––––––––––––
Contribution per unit and sales costs.
Or
Total fixed costs
Break-even revenue = –––––––––––––– Use this when we
Contribution ratio need the break-even
point in $.
Target profit
If, rather than simply break-even, the organisation has a target level of profit to
achieve, this target profit is added to the fixed costs in the formulae above.
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