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Cost and break even analysis - Coggle Diagram
Cost and break even analysis
Revenue cost and profit
Costs
types of costs
variable cost
Cost thatvary directly with the output
variable cost= variable cost per unit x product sold
total cost
the sum of variable and fixed cost
fixed cost
Costs that don't change as the level of output changes
All the expenses that are produced by a business
profit and loss
profit
The remaining money after the costs of the business have been subtracted
loss
When the business has a larger cost than revenue, they are at a loss as they are loosing money
The main objective of a business is making profit
revenue
The income a business earns from the sales of goods or services
formula
revenue=quantity sold x selling price
revenue increases as the volume of sale increases
Contribution
The contribution is the money a product makes after the costs have been subtracted
contribution = selling price per unit - variable cost per unit
Break-even
break even point
The point where the revenue and cost are equal to each other
The business wants to surpass this point to make a profit
Calculating break even
Break even= fixed cost/contribution
Break even chart
A visual representation of the break even point
parts of the line
fixed cost
In the graph the fixed cost line stays straight and doesn't change
total cost
The line goes up as the output increases caused by the variable cost
fixed cost + variable cost
revenue
The line goes up as the total output increases
When the revenue and total cost line touch each other, the break even point has been reached.
The margin of safety, which is the difference between the actual level of output and the break-even point
axis
y axis
revenue and cost
x axis
number of units
Uses of the chart
The break-even chart can also be used to identify profit or loss at different levels of output
Profit happens when revenue> total cost
loss happens when revenue<cost
Find out the break even point.
example of break even chart
file:///home/chronos/u-8375270a77df2a8f588422d8e30fc042f516fdb7/MyFiles/Downloads/Screenshot%202025-01-21%2009.09.02.png
Changes in a break even point
increase variable cost :
break even point increases
decreased variable cost
break even point decreases
decreased selling price
break even point increases
increased fixed cost
break even point increases
Increased selling price
reduces break even point
decreased fixed cost
break even point decreases
Limitation of break even
Doesn't account for discounts or selling in bulk
It assumes all the stock has been sold
Doesn't account for shift in business practice
Incorrect data can lead to an incorrect forecast