1. Break Even Analysis and Forecasting Profits
A flipped lesson by Mr. Meyer
for Business Studies 3 students
2. Sales Forecasting
•
•
Use of a cost volume graph.
Shows relationship between Total Revenue and Total Costs on a
graph.
•
•
•
Profit can be shown graphically.
Total Costs = Fixed costs and Total Variable costs.
Fixed costs are costs that do not vary regardless of how many units
are sold.
•
Variable costs are costs per unit sold * number of units sold.
3. Break Even Analysis
•
Determines the level of sales needed to cover all costs (fixed costs
and variable costs).
•
•
Sales above the break even point means a profit.
Sales below the break even point means a loss
5. Break Even Example on Page 416
Fixed costs = $600000
Sale price of tennis racquet = $200
Variable cost of each tennis racquet = $80
BE=
Total fixed costs
Sales Price – Variable costs per unit
•
BE = 600000
(200-80)
=
600000
120
Break Even = 5000 units
6. What does it mean for ‘Better Racquets’?
•
•
5000 racquets need to be sold in one year to break even
That means under 100 racquets need to be sold every week to break
even.
•
If the business sells less than 100 racquets then ‘Better racquets has
made a loss.
•
If the business sells more than 100 racquets then ‘Better racquets
has made a profit.
7. A graphical example
By using a cost volume graph it illustrates
when a profit or loss is expected.
Use the graph on Page 416 of your text.
10. Total Costs
Total costs = Fixed costs + variable costs
The Total Costs curve begins at 0 sales and Fixed costs.
11. Break Even Analysis
A worked example
•
•
•
•
Using figure 12.17 from page 416 in your text.
Sales Price = $1000
Variable cost per unit = $800
Fixed costs = $30000
12.
13. Break Even Analysis
A worked example
•
•
•
•
Using figure 12.17 from page 416 in your text.
Sales Price = $1000
Variable cost per unit = $800
Fixed costs = $30000
BE=
Total fixed costs
Sales Price – Variable costs per unit
•
BE = 30000
(1000-800)
=
30000
200
Break Even = 150 units
15. 250
225
Break Even Point at 150 units
200
Total costs ($,000)
175
Profit making area
150
125
Fixed Costs
Total costs
Fixed costs start at 0 sales
100
Revenue
75
Loss making area
50
25
0
0
25
50
75
100
125
Sales
150
175
200
This template can be used as a starter file to give updates for project milestones.SectionsRight-click on a slide to add sections. Sections can help to organize your slides or facilitate collaboration between multiple authors.NotesUse the Notes section for delivery notes or to provide additional details for the audience. View these notes in Presentation View during your presentation. Keep in mind the font size (important for accessibility, visibility, videotaping, and online production)Coordinated colors Pay particular attention to the graphs, charts, and text boxes.Consider that attendees will print in black and white or grayscale. Run a test print to make sure your colors work when printed in pure black and white and grayscale.Graphics, tables, and graphsKeep it simple: If possible, use consistent, non-distracting styles and colors.Label all graphs and tables.
Fixed costs include rent, insurance, salaries of management and office staff, rates, depreciation, interest on loans, and office expenses.Variable costs include direct labour cost of materials and delivery, freight and packaging