Break Even Point
Predict Profit
Can see how much profit they would make at different volumes of sales
Break even is expressed as
Units not Money!
Loss
A negative difference between the revenues taken in by a business and the costs of operating a business.
"What If"
Allows them to see what would happen in different situations
BEP
Fixed Costs / Contribution ( SP - VC )
Inform Pricing Decisions
Helps a business decide how much they should charge for their product / service. They want their business to be profitable
Profit
Is a positive difference between a firm's revenue and its costs
Margin of Safety (MOS)
Is the difference between a firm's level of demand and its break-even quantity. A positive MOS means the firm can decrease output (sales volume) by that amount without making a loss. A negative MOS means that the firm is making a loss.
Seek Finance
Lenders will only commit money to a business if they are confident it will be profitable, BE can promote their business
Contribution Definition
The amount each sale provides towards fixed costs or profit Price - VC
Break-even Point
The point at which sales revenue equals the total cost of producing a good or service.