QUESTION 72
WHAT IS BREAKEVEN ANALYSIS AND WHY IS IT IMPORTANT?
Why it’s important: Once an organisation reaches breakeven point the profit per unit produced increases significantly as all fixed costs have been recovered and further sales only have to recover the variable costs associated with production.
To break even, every organisation has to recover both its fixed costs and variable costs. For example, an organisation manufactures just one product, which it sells for £20. The variable cost per unit is £10 and fixed costs are £100,000. What’s the breakeven point?
Once the breakeven point is reached, each unit sold generates £10 clear profit:
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