Break Even
Lesson 3
Lesson Objectives
£
To construct break-even charts
££
To evaluate how changes impact
the break-even chart
£££
To analyse the strengths and
weaknesses of break-even
analysis
Break-even charts
Eat-your-fill restaurant
Information needed
Eat-yourfill data
Weekly fixed costs
£2,800
Variable cost per customer £3
Average revenue earned
per customer
£10
Maximum weekly number 600
of customers- the capacity
of the restaurant
Construct a break-even chart
using the information in the
table
You will each need a piece of
graph paper, a ruler and a
pencil
You have 5 minutes to
complete this …
ON YOUR OWN
Bill Potter
Information
needed
Forecasts
Annual fixed costs
£30,000
Variable costs per
customer
£45
Selling price per
pair of shoes
£105
Expected maximum
sales level
2,000 pairs per year
Using the
information in the
table construct a
break-even chart.
If you need help,
refer to the chart that
you constructed last
lesson
• The break-even chart was included in Bill’s
business plan, however the Bank Manager
questioned the high selling price. Bill
completed some market research and decided
that £85 would be more realistic.
• He also decided that it would be best to rent a
shop in a better location but this would cost
an extra £20,000 a year.
• Compare the two break-even charts
Strengths and weaknesses of break even
analysis
• Working in a pair, list as many strengths and weaknesses as possible
Strengths
Weaknesses
•Simple concept
•Assumes that all output is sold
•Good for decision making
•Assumes that the business
only sells one product
•Used when applying for
loans
•Can be easily changes to
deal with ‘what if’ situations
•Assumes that everything is
consistent
•It does not show what will
happen, revenue or price may
change
Complete the activity booklet
Complete the following
•
Research topic: Use the BBC Business
website to research a company that is
struggling to meet its break-even point.
•
Hint: Search for the Airbus A380
Plenary
• Can you…
– Explain what contribution and contribution per unit mean
– Explain what ‘breaking-even’ means and define break-even
point
– Use contribution per unit to calculate the break-even point
– Draw a break-even chart and identify its main features
– Change any of the key variables- price, variable cost and
fixed cost- and re-draw a break-even chart
– Use the data to advise decision making
– Evaluate the usefulness of break-even analysis