Break even, BM

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• what is sales revenue? total sales
• Why start up businesses may expect lower revenue less demand, less supply
• start ups make higher revenue unique, from well known brand, low price
• calculate sales revenue price x units
• what is cost? All expenses
• Fixed cost cost which do not vary
• Variable cost cost which vary
• semi variable cost cost which has both fixed and variable
• Direct cost can be linked directly to units
• indirect cost can't be identified with units
• calculate total cost fixed cost + variable cost
• calculate profit/loss revenue - costs
• importance of profit provides measures of success or loss, best source of capital and investment for business growth, helps to attract investors ex bank
• how to find BE (break even point) fixed cost / (selling price per unit - variable cost per unit(contribution margin))
• how to find break even price break even level of output / units
• effect of changes in variables FC decreases - BE sooner, VC increases - BE later, selling price increases - BE earlier
• calculate margin of safety (units) Units sold - break even point
• calculate contribution margin selling price per unit - variable cost per unit
• uses of BE analysis to know minimum output to make profit, determining the product price and impact on business, determining effect of changes in variable or fixed cost on profit or loss, motivate external finance ex bank
• strengths of BE analysis simple to understand, avoid sophisticated techniques, cheap
• weaknesses of BE analysis simple limitation, assumptions are unrealistic, all output are sold, unchanged conditions, cost and revenue curves being linear, multiple products or services, mixed costs

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