IGCSEBusinessEdexcelRevision Notes3. Business FinanceCosts & Break-even AnalysisCalculating Break-even

Calculating Break-even (Edexcel IGCSE Business)

Revision Note

Lisa Eades

Calculating Break-even

  • The break-even point is calculated using the formula

space Break minus even space Point space in space Units space equals space fraction numerator Fixed space costs over denominator Contribution end fraction

Worked example

Mięsisty Burgers has the following financial information for the month of May.

  € May
Raw materials for each burger 2.10
Packaging for each burger 0.20
Fixed costs  1 730
Selling price of each burger 4.95

(a) Using the information in the table, calculate the level of output required to break even in May. You are advised to show your workings (3 marks)

 

Step 1 - Calculate the variable costs per burger

Variable space cost space per space burger space equals space Raw space materials space plus space Packaging Variable space cost space per space burger space equals space € 2.10 space plus space € 0.20 space equals space € 2.30 (1 mark)

 

Step 2 -  Calculate the contribution per burger

Contribution space per space Burger space equals space Selling space Price space minus space Variable space Costs Contribution space per space Burger space equals space € 4.95 space minus space € 2.30 equals space € 2.65     (1 mark    

Step 3 - Substitute the values into the break-even formula

  Break minus even space point space in space units space equals space fraction numerator Fixed space Cost over denominator Contribution end fraction Break minus even space point space in space units space equals space fraction numerator 1 comma 730 over denominator 2.65 end fraction Break minus even space point space in space units space equals space 653 space burgers      (1 mark)

Exam Tip

Always round up the break even point to the nearest whole unit

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    Lisa Eades

    Author: Lisa Eades

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.