Break-Even Analysis

Fixed Costs:
• Rent: 400
• Helper (Wages): 200

Variable Costs:
• Flowers: 0.50 per bunch

Selling Price:
• Flowers: 2 per bunch

So we know that:
Total Fixed Costs = 600
Variable Cost per Unit = 0.50
Selling Price per Unit = 2.00
 Break-Even Analysis

 We must firstly calculate how much SP = 2.00

income from each bunch of flowers can VC = 0.50
go towards covering the Fixed Costs.
FC = 600
This is called the Unit Contribution.
Selling Price – Variable Costs = Unit
Contribution
2.00 - 0.50 = 1.50
 For every bunch of flowers sold 1.50
can go towards covering Fixed Costs
Break-Even Analysis SP = 2.00

Now to calculate how many units must VC = 0.50

be sold to cover Total Costs (FC + VC) Unit cost = 1.50
FC = 600
This is called the Break-Even Point
Break Even Point = Fixed Costs  Unit Contribution
600  1.50 = 400 Units

Therefore, 400 bunches of flowers must be

sold to Break Even – at this the point the
business is not making a Profit nor incurring a
Loss – it is merely covering its Total Costs.
Break-Even Analysis
Break Even can also be used to calculate Profit
(or Loss) at a given level of output

For example:
J Bannerman sells Golf Clubs. How much
profit/loss is made when 5,000 golf clubs are
sold?

Each Golf Club is sold for 20

Variable Cost per golf club is 10
Fixed Costs total 24,000
Break-Even Analysis SP = 20.00
VC = 10.00
Firstly, calculate Unit Contribution FC = 24,000
SP – VC = Unit Contribution
20.00 - 10.00 = 10.00 Sales = 5,000 units

Now calculate Total Contribution when 5,000 golf clubs

are sold:

Unit Contribution x No. of units = Total Contribution

10.00 x 5,000 = 50,000

Now calculate Net Profit at 5,000 units

Total Contribution – Fixed Costs = Net Profit
50,000 - 24,000 = 26,000
 Variable Costs =
Break-Even Analysis
Flowers 1.49
Paper 0.01
Let’s try another example:
(3/300)

Caroline Wilson owns a florist shop. Total VC 1.50

She buys each bunch of flowers for 1.49 and

special wrapping paper for 3 per roll. Each roll of
wrapping paper will wrap 300 bunches of flowers.
Rent of her premises is 1,050 per month and she
pays monthly insurance of 200. Caroline sells Fixed Costs =
each bunch of flowers for 2.50. What do we Rent 1,050
know? Insurance 200
Total FC 1,250
Break-Even Analysis SP = 2.50

Calculate Caroline’s Break Even VC = 1.50

Point and how much Profit FC = 1,250

would she make if she sold 2,000 bunches of
flowers?
Firstly, calculate Unit Contribution
SP – VC = Unit Contribution
2.50 - 1.50 = 1.00
Now calculate Break Even
Fixed Costs  Unit Contribution
1,250  1.00 = 1,250 units
Break-Even Analysis SP = 2.50
VC = 1.50
How much Profit would she make
if she sold 2,000 bunches of flowers? FC = 1,250
Unit Cost = 1.00
Now, calculate the profit at 2,000 bunches of flowers:

Unit Contribution x No. of Units = Total contribution

1.00 x 2,000 units = 2,000

Total Contribution – Fixed Costs = Net Profit

2,000 - 1,250 = 750