Business Management HL
6
Chapters
223
Notes
Unit 1 - Introduction To Business Management
Unit 2 - Human Resource Management
Unit 3 - Finance & accounts
Unit 4 - Marketing
Unit 5 - Operations management
Unit 6 - Assessment
Business Management HL
Unit 5 - Operations management
Unlock The Secret To Profit: Master Your Break-Even Point & Margin Of Safety
666 words
4 mins read
Last edited on 14th Jun 2024
Table of content
📊 Breaking even
- The break-even quantity is the minimum number of items that must be sold so that all costs are covered by the sales revenue.
- At the break-even point, there is no loss, but no profit either.
Break - even chart 📉
- A break-even chart shows the value of a firm’s costs (fixed costs, variable costs, total costs) and revenue against a given level of output.
- It can be drawn by plotting the following lines
- Fixed Costs (FC): A horizontal line representing the constant fixed costs regardless of the output.
- Variable Costs (VC): Begins at zero and increases proportionally with output.
- Total Costs (TC): Starts at the level of FC and follows the same trend as the VC line.
- Total Revenue (TR): Begins at zero and increases with the number of units sold.
- The break-even point is where the TC line intersects the TR line.
- The left side of the break-even point indicates a loss, while the right side indicates profit.
Margin of safety 🛑
- The margin of safety is the difference between the break-even level of output and the actual level of output.
- The formula is: margin of safety = current output - break-even output.
- A positive margin indicates profit, while a negative margin indicates loss.
Calculating break - even quantity 🔢
- Contribution Per Unit Method
- Formula: break-even quantity = fixed costs / contribution per unit
- Contribution per unit = selling price - variable cost per unit
- Total Costs = Total Revenue Method
- Total revenue = price per unit × quantity sold
- Total costs = total fixed costs + total variable costs
- Solve for quantity (Q) where TR = TC.
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Business Management HL
Unit 5 - Operations management
Unlock The Secret To Profit: Master Your Break-Even Point & Margin Of Safety
666 words
4 mins read
Last edited on 14th Jun 2024
Table of content
📊 Breaking even
- The break-even quantity is the minimum number of items that must be sold so that all costs are covered by the sales revenue.
- At the break-even point, there is no loss, but no profit either.
Break - even chart 📉
- A break-even chart shows the value of a firm’s costs (fixed costs, variable costs, total costs) and revenue against a given level of output.
- It can be drawn by plotting the following lines
- Fixed Costs (FC): A horizontal line representing the constant fixed costs regardless of the output.
- Variable Costs (VC): Begins at zero and increases proportionally with output.
- Total Costs (TC): Starts at the level of FC and follows the same trend as the VC line.
- Total Revenue (TR): Begins at zero and increases with the number of units sold.
- The break-even point is where the TC line intersects the TR line.
- The left side of the break-even point indicates a loss, while the right side indicates profit.
Margin of safety 🛑
- The margin of safety is the difference between the break-even level of output and the actual level of output.
- The formula is: margin of safety = current output - break-even output.
- A positive margin indicates profit, while a negative margin indicates loss.
Calculating break - even quantity 🔢
- Contribution Per Unit Method
- Formula: break-even quantity = fixed costs / contribution per unit
- Contribution per unit = selling price - variable cost per unit
- Total Costs = Total Revenue Method
- Total revenue = price per unit × quantity sold
- Total costs = total fixed costs + total variable costs
- Solve for quantity (Q) where TR = TC.
Unlock the Full Content!
Dive deeper and gain exclusive access to premium files of Business Management HL. Subscribe now and get closer to that 45 🌟