Calculating Break-even (Edexcel IGCSE Business): Revision Note

Mięsisty Burgers has the following financial information for the month of May.

(a) Using the information in the table, calculate the level of output required to break even in May. You are advised to show your workings.

[3]

Step 1 - Calculate the variable costs per burger

$$\begin{gathered} \mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{burger}=\mathrm{Raw}\mathrm{materials}+\mathrm{Packaging} \\ \mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{burger}=€2.10+€0.20 \\ =€2.30 \end{gathered}$$ [1 mark]

Step 2 -  Calculate the contribution per burger

$$\begin{gathered} \mathrm{Contribution}\mathrm{per}\mathrm{Burger}=\mathrm{Selling}\mathrm{Price}-\mathrm{Variable}\mathrm{Costs} \\ \mathrm{Contribution}\mathrm{per}\mathrm{Burger}=€4.95-€2.30 \\ =€2.65 \end{gathered}$$ [1 mark]

Step 3 - Substitute the values into the break-even formula

  $$\begin{gathered} \mathrm{Break}-\mathrm{even}\mathrm{point}\mathrm{in}\mathrm{units}=\frac{\mathrm{Fixed}\mathrm{Cost}}{\mathrm{Contribution}} \\ \mathrm{Break}-\mathrm{even}\mathrm{point}\mathrm{in}\mathrm{units}=\frac{1,730}{2.65} \\ \mathrm{Break}-\mathrm{even}\mathrm{point}\mathrm{in}\mathrm{units}=653\mathrm{burgers} \end{gathered}$$ [1 mark]

Always round up the break even point to the nearest whole unit