Break-Even Chart Slides
A Business supplies the following figures about its activities:
- Fixed Costs: €300,000
- Variable Cost: €20 per unit
- Forecast output (Sales): €20,000 units
- Selling Price: €50 per unit
Illustrate by means of a break-even chart (40 marks):
- The break-even point
- The profit at full capacity
- The margin of safety
Answer
Units 20,000
Fixed Costs: €300,000
Variable Costs (20,000 x €20) = €400,000
Totals Costs: €300,000 + €400,000 = €700,000
Total Revenue: (20,000 x €50) = €1,000,000
Profit = €1,000,000 - €700,000 = €300,000
Break-even formula:
\[\frac{Fixed Costs}{Selling Price (SP) per unit - Variable Cost (VC) per unit}\] \[= \frac{300,000}{50 -20}\]= 100,000 units
Drawing the Break-Even Chart
To plot break-even point on chart
From X axis 10,000
From Y axis €500,000 (10,000 x €50)
Break Even Chart
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Step 7
Example Question
Read the information supplied and answer the questions which follow
Medron plc has supplied the following financial information for the new medical device:
Forecast Output (Sales): 60,000 units
Selling Price per unit: €30
Fixed Costs: €400,000
Variable Costs per unit: €20
Illustrate the following by means of a break-even chart (25 marks)
- Break-even point
- Margin of safety at the forecast output
- Profit at forecast output
Answer (to Example Question)
- BEP = Fixed Costs/Contribution = 400,000/30-20 = 40,000 units
- Margin of Safety = 60,000 - 40,000 = 20,000 units
- Profit at Forecast Output = 1,800,000 - 1,600,000 = €200,000
If you only did the calculations, you would get only get 12 total marks for the question. 4 marks for the BEP calculation, 4 marks for the MOS and 4 marks for the Profit at Forecast Output
Table
| Units | Selling Price | Variable Costs | Fixed Costs | Total Costs | Total Revenue | Profit/Loss |
|---|---|---|---|---|---|---|
| 0 | 30 | 20 | 400,000 | 400,000 | 0 | (400,000) |
| 40,000 | 30 | 20 | 400,000 | 1,200,000 | 1,200,000 | 0 |
| 60,000 | 30 | 20 | 400,000 | 1,600,000 | 1,800,000 | 200,000 |
