Learning objective
Explain break-even output.
Read the explanation, check the common trap, then practise with flashcards and questions.
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Topic
Financial terms and calculations
Subtopic
Break-even
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Quick explanation
Explain break-even output
- This point belongs to Financial terms and calculations, especially Break-even.
- You need to be able to explain break-even output.
- The key ideas to know are break-even output.
- Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.
Key concepts
Why it matters
This objective helps connect Break-even to exam-style questions, flashcards, and revision notes for Financial terms and calculations.
Quick student answer
A small manufacturer has fixed costs of £10,000, a variable cost of £20 per unit, and sells each unit for £50. Calculate the break-even output.
Direct answer
334 units
How it works
Formula: Break-even units = Fixed Costs ÷ (Selling Price – Variable Cost). Calculation: 10,000 ÷ (50 – 20) = 10,000 ÷ 30 = 333.33. Since a fraction of a unit cannot be sold, round up to 334 units. Interpretation: The manufacturer must sell at least 334 units to cover all costs and achieve zero profit.
Key terms
- break-even output: The quantity of units that a business must produce and sell so that its total revenue equals its total costs, leaving no profit or loss.
Common trap
Confusing break-even output with break-even revenue: Break-even output refers to units sold; break-even revenue is the monetary value of those units (price × units).
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Revision notestopic notes
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Open revision notesRelated learning objectives
- Distinguish variable costs, fixed costs and total costs.
Costs, revenue, profit and loss
- Explain revenue, costs, profit and loss.
Costs, revenue, profit and loss
- Explain investment projects such as investment in machinery, buildings and vehicles.
Average rate of return
- Calculate average rate of return for business investment projects.
Average rate of return
- Interpret break-even charts.
Break-even