Calculating Break-even
- The break-even point can be calculated using one of two formulas
- The first calculates the number of units which need to be sold to break-even
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- The second calculates the value of the costs/revenue at which point the firm breaks even
Worked example
Mięsisty Burgers has the following financial information for the month of May.
€ May | |
Raw materials for each burger | 2.10 |
Packaging for each burger | 0.20 |
Fixed costs | 1 730 |
Selling price of each burger | 4.95 |
(a) Using the information in the table, calculate the level of output required to break even in May. You are advised to show your workings (3 marks)
Step 1 - Calculate the variable costs per burger
(1 mark)
Step 2 - Substitute the values into the breakeven formula
(2 marks)
Step 3 - Round to the nearest unit
653 burgers need to be sold to break even in May (2 marks for a correct answer)
Exam Tip
Always round up the break even point to the nearest whole unit