Blog
BUSS1 - Profit and Breakeven Calculations
Jim Riley
8th January 2013
This is perhaps the most important part of AQA BUSS1 - the ability to calculate expected revenues, costs and profit from the information given in the BUSS1 together with calculating the relevant breakeven figures (breakeven output and margin of safety being the two most significant).I have outlined the key formulas below together with some worked examples.You can also practice profit and breakeven calculations using the following revision quizzes.Revision quiz - Costs Revenues and ProfitRevision quiz - Using Breakeven Analysis in Decision-makingFor further support on this key area, the following revision presentations ought to prove helpful:Basics of ProfitBreakeven Analysis (Introduction)Cost BasicsRevenues and Demand
| Profit and Breakeven Calculations | ||
| Data for worked examples below | ||
| Number of Units Sold by a Firm per period | Units | 10,000 |
| Average Selling Price per Unit (£) | SP | £10.00 |
| Variable Costs per Unit Sold (£) | VC/Unit | £6.00 |
| Fixed Costs per Period (£) | FC/Unit | £25,000 |
| Calculating Profit | ||
| Total Revenues (Sales) | Units x SP | £100,000 |
| Total Variable Costs | VC/Unit x Units | £60,000 |
| Gross Profit (Revenues less Variable Costs) | GP | £40,000 |
| Fixed Costs | FC | £25,000 |
| Net Profit | GP less FC | £15,000 |
| Calculating Breakeven: | ||
| Contribution per Unit: | ||
| Selling Price per Unit Sold (£) | SP | £10.00 |
| Variable Costs per Unit Sold (£) | VC/Unit | £6.00 |
| Contribution per Unit Sold (£) | Cont / Unit | £4.00 |
| Total Contribution: | ||
| Number of Units Sold | Units | 10,000 |
| Contribution per Unit (£) | Cont/Unit | £4.00 |
| Total Contribution = Unit x Cont/Unit | £40,000 | |
| Breakeven output: | ||
| Occurs where Contribution = Fixed Costs | ||
| Fixed Costs per period (£) | FC | £25,000 |
| Contribution per Unit (£) | Cont/Unit | £4.00 |
| Breakeven Output (Units) | FC / (Cont/Unit) | 6,250 |
| Margin of Safety: | ||
| The difference between the breakeven output and actual output | ||
| Actual Output (Units) | Units Sold | 10,000 |
| Breakeven Output | Calculated above | 6,250 |
| Margin of Safety (Units) | Actual less Breakeven | 3,750 |