Page 60 - P1 Integrated Workbook STUDENT 2018

Chapter 4

1.2 The break-even point

This is the point at which

 profits (or losses) are zero

 the total revenue which only just cover the total costs

 the total contribution will only just cover the total fixed costs.

This can be calculated either as:
Total fixed costs will
Total fixed costs
Break-even units = ––––––––––––––––– include both production
Contribution per unit and sales costs.

Or

Use this when we
Total fixed costs
Break-even revenue = –––––––––––––– need the break-even
Contribution ratio 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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