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Income increased To Budget

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Introduction

Middle

Some accountants recommend that reserves should be maintained which allow the business to continue for at least 3 months in the event of emergency. It is also important for businesses to have some reserves in the early stages of the business as it may be difficult to make accurate budget predictions and costs. Expenses may be higher than planned and income may be less. An emergency budget will allow the business to continue to trade. BREAK-EVEN ANALYSIS The break-even point is the level of output at which a business covers its total costs. In other words where total cost = total revenue. Anything produced & sold above this point is profit, anything below is loss. THE PURPOSE OF BREAK-EVEN ANALYSIS * Estimate the future level of output they will need to produce and sell in order to break-even or achieve a profit target * Explore "what if scenarios" e.g. assess the likely impact of price changes upon the level of output needed to break even OR assess how changes in fixed and/or variable costs may affect the level of ...read more.

Conclusion

The rent is currently �400 per month and other fixed costs add up to �100 per month. The desks are sold to computer retailers at a standard price of �60. Production is organised between five staff and the variable production costs are �35 per desk. Calculate how many desks Armstrong Ltd would have to make in a month in order to break even. CALCULATING BREAK-EVEN POINT USING TC AND TR Another way of calculating the break-even point is to use the total costs and total revenue equation. In the case of the above example: Total costs = fixed costs + variable costs Or TC = �1,000 + �20Q And Total revenue = price x quantity sold Or TR = �30Q Where Q is the quantity produced and sold. A firm will break-even where total cost is equal to total revenue. Therefore we can write: TC = TR �1,000 + �20Q = �30Q To find Q we can calculate: 1,000 = 30Q - 20Q 1,000 = 10Q 1,000 = Q 10 100 = Q TASK TWO Using the same scenario as before, calculate the break-even point for Armstrong Ltd using the total costs and total revenue equation. ...read more.

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