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Break-Even Analysis and Business Plans.

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Introduction

Introduction to Business: Unit 1: Break-Even Analysis and Business Plans Task 1 To calculate Break Even from referring to and using the figures in Appendix, I can calculate the break-even point for the 'Cutting Shop' in three applicable methods. The three ways to calculate the break-even point are as follows: > By Producing a Table > By Calculations > By Constructing a Graph To produce a break-even table, I will firstly have to identify what my Fixed Costs (FC) and Variable Costs (VC) are. My Fixed Costs are those costs that do not vary with the level of production/output, and my Variable Costs are those costs that vary with the level of output/production. So from establishing this, I can now pick out my FC and VC from Appendix 1. My Fixed Costs are as follows: > The Total Cost to lease the Toning Tables for 6 months from the 1st of November 2003 to the 30th of April 2004 (�22,620) > The Cost of Advertising (�1,120) > The Total Cost of Insurance which is payable by the 1st of November 2003 (�620) ...read more.

Middle

Costs (�) Costs (�) Revenue (�) - (L) 0 �0.00 �28,560 �28,560.00 �0.00 (-�28,560.00) 10 �12.00 �28,560 �28,572.00 �80.00 (-�28,480.00) 20 �24.00 �28,560 �28,584.00 �160.00 (-�28,400.00) 50 �60.00 �28,560 �28,620.00 �400.00 (-�28,160.00) 100 �120.00 �28,560 �28,680.00 �800.00 (-�27,760.00) 250 �300.00 �28,560 �28,860.00 �2,000.00 (-�26,560.00) 500 �600.00 �28,560 �29,160.00 �4,000.00 (-�24,560.00) 1000 �1,200.00 �28,560 �29,760.00 �8,000.00 (-�20,560.00) 2000 �2,400.00 �28,560 �30,960.00 �16,000.00 (-�12,560.00) 4000 �4,800.00 �28,560 �33,360.00 �32,000.00 (�3,440.00) 4100 �4,920.00 �28,560 �33,480.00 �32,800.00 (�4,240.00) 4200 �5,040.00 �28,560 �33,600.00 �33,600.00 �5,040.00 4300 �5,160.00 �28,560 �33,720.00 �34,400.00 �5,840.00 Method 2: By Calculation: Break-even when using a calculation method can be found by using the Contribution Method. When using this method, we will need to know: Fixed Costs = �28,560 Variable Costs per session = �1.20 Selling Price per session = �8.00 Step 1: Contribution = Selling Price Per Session - Variable Costs. So therefore Contribution = �8.00 - �1.20 = �6.80 Contribution Step 2: Next step is to divide Our Fixed Costs (�28,560) by our Contribution, which is �6.80 �28,560/�6.80 = 4200 units or in this case sessions need to be carried out in order for the 'Cutting Shop' to Break Even. ...read more.

Conclusion

place outside the firm which may affect the chances of break-even taking place Furthermore it is of the essence or it is vital for finding the break-even point because for a business, break-even is a critical point: For example, the business needs to know if a product will generate profit, i.e. by selling at above the break-even point. Break-even is then an important tool or part of a Business Plan because a lender will want to know that it can get its money back from the lendee. Break-even also serves as a method for a business to ask the question 'what if?' For e.g. what if rent increases by 10%? Can be answered in part at least by looking at the break-even chart. The effect on the profitability of the business can be seen, subject to the limitations - i.e. the relationship between sales revenue, variable costs and fixed costs all remain the same at different levels of production which is not true. A question such as 'what if' sales increase by 50%?' can be answered by examining the effect on the nature of the fixed and variable costs and then re-calculating the BE point. Amish Patel Peter Eskeson ...read more.

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