Page 1 - BE Theory Note

Breakeven Analysis

Breakeven Point

Many new businesses aim is to make sure their sales revenue simply covers their cost

in the first couple of years until their product becomes established.

The point at which sales revenue and total costs are the same is called the

Break-even Point

This is where a business does not make a profit but nor does it make a loss. It needs
to work out how many of its product it needs to sell in order to cover all the costs.

Fixed and Variable Costs

Costs can be categorised as fixed costs or variable costs. Fixed Costs are expenses

that do not change based on production or sales volume. Variable costs are expenses

that do change depending on how much is produced / sold. The greater the sales,
the more products have to be bought in / produced

Examples of Fixed Costs Example Variable Costs

Rent and Rates Raw materials and components

Insurance Hourly paid staff

Salaries Packing and distribution

Administration Costs Gas and electric

Total Costs

Total Costs = Fixed Costs + Variable Costs

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