Calculating Break-even (Edexcel IGCSE Business)

Spec point — 3.3.2

Calculating break-even

• The break-even point is calculated using the formula

$\mathrm{Break}-\mathrm{even} \mathrm{Point} \mathrm{in} \mathrm{Units}=\frac{\mathrm{Fixed} \mathrm{costs}}{\mathrm{Contribution}}$

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]

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

$\mathrm{Break}-\mathrm{even} \mathrm{point} \mathrm{in} \mathrm{units}=\frac{\mathrm{Fixed} \mathrm{Cost}}{\mathrm{Contribution}}\,\,\mathrm{Break}-\mathrm{even} \mathrm{point} \mathrm{in} \mathrm{units}=\frac{1,730}{2.65}\,\,\mathrm{Break}-\mathrm{even} \mathrm{point} \mathrm{in} \mathrm{units}=653\mathrm{burgers}$ [1 mark]

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