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Break-even analysis

Break-even analysis

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Break-even analysis

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  1. Break-even analysis

  2. Break-even analysis predicts when… … Your business is going to start making profit.

  3. Evaluate a start-up idea • Assess the impact of new costs • Project profitability for a new product It can also be used to:

  4. Start with your costs… • …By separating them into fixed costs (overheads) and variable costs • You need to know your: • TOTAL FIXED COSTS • VARIABLE COST PER UNIT It can also be used to:

  5. The break-even equation: Total fixed costs Sales volume required to break even = Contribution margin

  6. Dollar break-even equation: The same as before, just express the contribution margin as a % converted into a decimal figure 62.5% = 0.625

  7. Hours worked break-even equation: Total fixed costs Hourly charge out rate = Hours to break even

  8. Advertising spend break-even equation: Advertising spend Contribution margin = Sales volume required to break even

  9. Weighted average price… …Is used to find a break-even point by companies selling multiple products or services

  10. Weighted break-even equation: Total fixed costs (weighted average price – weighted average variable costs) = Sales volume required to break even