Worksheet for Assignment 22: Break-even analysis
Using the format on the break-even analysis sheet (Table 22.1):
Table 22.1
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1 |
Calculate your gross profit |
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Projected sales |
£/$/€ |
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– Direct costs: |
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Purchases (material costs) |
£/$/€ |
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Labour costs |
£/$/€ |
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= Gross profits |
£/$/€ |
(A) |
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2 |
Calculate your gross profit margin |
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× 100 |
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= Gross profit margin |
% (B) |
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Notes: |
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3 |
Calculate your overheads |
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Indirect costs: |
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Business salaries |
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(including your own drawings) |
£/$/€ |
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+ Rent |
£/$/€ |
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+ Rates |
£/$/€ |
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+ Light/heating |
£/$/€ |
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+ Telephone/postage |
£/$/€ |
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+ Insurance |
£/$/€ |
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+ Repairs |
£/$/€ |
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+ Advertising |
£/$/€ |
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+ Bank interest/HP |
£/$/€ |
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+ Other expenses |
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(eg depreciation of fixed assets) |
£/$/€ |
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£/$/€ |
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£/$/€ |
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£/$/€ |
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£/$/€ |
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= Overheads |
£/$/€ |
(C) |
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4 |
Calculate your actual turnover required to break even |
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× 100 |
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= Break-even sales £/$/€(D) |
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5 |
Calculate the monthly target to break even |
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= Monthly break-even sales £/$/€ ——————— |
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6 |
Calculate your estimated profit |
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Projected sales |
£/$/€ |
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– Break-even sales (D) |
£/$/€ |
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+ Gross profit margin (B) |
% |
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= Profit (for 12 months) |
£/$/€ |
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- Construct a break-even analysis for year 1 of your business from the figures calculated in the last three chapters. You can use the Wavendon example below as a guide, or use a spreadsheet as given above.
- Estimate the effect of the following events on your break-even point for each year:
- a 10 per cent rise/fall in sales volume;
- a 10 per cent rise/fall in unit selling price;
- a 10 per cent rise/fall in variable costs per unit of sale, eg a meal;
- a 10 per cent rise/fall in fixed costs;
- a requirement for achieving your profit objective by year 1 – now what ‘volume’ of product must you sell to break even?
- Look back to Assignment 8 on Pricing, and review your proposed selling price in the light of work/research carried out during this assignment.