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Break-even analysis (Calculating break-even - methods (graphical method…

- - - - fixed costs, which in the short term, will not vary with the level of output and which must be paid whether the firm produces anything or not
      - total costs, which are the addition of fixed and variable costs
      - sales revenue, obtained by multiplying selling price by output level (price x output level)
    - - the amount by which the output level exceeds the break-even level of output
  - - - total contribution
        
        unit contribution x output
        
        total contribution of all units sold
        
        if total contribution of a products exceeds the fixed costs for the period, then the surplus is profit.
        3.if the total contribution is less than fixed costs, then a loss has been made.
      - contribution per unit
        
        selling price of a product minus direct costs per unit
        
        the amount each unit of production contributes towards the fixed costs and profit of the business.
        
        each item produced will incur direct costs (mainly variable costs)
        
        if the selling price of each unit is greater than this direct cost, then a contribution is being made.
        
        contribution is not profit because fixed costs have not yet been covered.
        
        break-even level of output = fixed costs / contribution per unit
        e.g.:
        fixed costs = $200000
        contribution per unit = $50
        so the break-even = $200000/$50
        = 4000 units