Write an explanation of the breakeven point for the owners Include the following

Question

Write an explanation of the breakeven point for the owners Include the following:- 1.* Explanation of Breakeven Point (what it is used for and how it assists business owners) 2.* An Explanation of the various types of costs (with examples) and their effect on the Breakeven point. 3.* The differences between the terms of the ‘breakeven point’ and ‘living costs’. Write an explanation of the breakeven point for the owners Include the following:- 1.* Explanation of Breakeven Point (what it is used for and how it assists business owners) 2.* An Explanation of the various types of costs (with examples) and their effect on the Breakeven point. 3.* The differences between the terms of the ‘breakeven point’ and ‘living costs’.

Explanation / Answer

1.*

Breakeven point (BEP) defines the level/volume of production where total costs of the company equals to total sales revenue. This is situation of no loss, no profit. BEP is helpful in management decisions like:

1. Determinantion of point of profibility

2. Price determination/change decision

3. Make or buy decisions

4. Change in product line

5. Expansion/Shut down decisions

2. *

There are two type of costs:- 1. Variables costs 2. Fixed costs

Effect of change in costs results in change in BEP, a example is shown as below for reference:-

Per unit Sales $          10.00 $          10.00 $          10.00 Less: Variable Cost $            6.00 $            7.00 $            7.00 Contribution Margin (Sales-VC) $            4.00 $            3.00 $            3.00 Fixed Cost $ 50,000.00 $ 50,000.00 $ 40,000.00 BEP in unit = Fixed Cost/Contribution per unit 12500.00 16666.67 13333.33

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