FIXED COSTS PRICE VARIABLE COSTS Breakeven and Breakeven

FIXED COSTS (PRICE – VARIABLE COSTS) Breakeven and Breakeven Charts 1. What is breakeven? Extension: A business buys shorts for £ 5 and sells them for £ 18. The business has fixed costs of £ 5000. How many shorts do they need to sell to breakeven?

We are learning how to calculate break even and total costs and draw break even charts • ALL draw a graph to show fixed costs, breakeven, variable costs and profit/loss with support • MOST independently use a graph to find the breakeven point for a business • SOME complete a range of tasks on breakeven using graphs and formulas to perform the appropriate analysis

Breakeven - contribution • Example • The “contribution” is the amount from each sale left over after variable costs is taken away. This amount is used to pay for the fixed costs until the fixed costs are paid in full, then this amount will become profit.

Class example FIXED COSTS (PRICE – VARIABLE COSTS) • Apple sells Iphones for £ 700. They cost £ 350 in materials to buy and each one made also costs £ 100 in royalties to patents owned. The total variable costs therefore are…. . ? • Apple has a factory where the Iphones are made. The daily cost of this factory is £ 100, 000. There also other costs such as sales, shops and other staff. These cost £ 10, 000 a day. • How many phones does the business have to sell in order to break even?

Lets draw a graph for it… Amount sold Revenue (£ 700 each) Cost to Fixed make that Costs amount (£ 450 VC) Total Costs Profit/loss

Lets draw a graph for it… Amount sold 100 200 300 400 500 Revenue (£ 700 each) 70000 140000 210000 280000 350000 Cost to Fixed Costs Total Costs Profit/loss make that amount (£ 450 VC) 45000 90000 135000 180000 225000 110000 110000 155000 200000 245000 290000 335000 -85000 -60000 -35000 -10000 15000

Tasks • Continue handbook • Extension sheet