Break even point and Margin of safety
emma2009
Registered Posts: 7 New contributor 🐸
Hi,
Can you tell me how you work out the break even point because i have read the book but its confusing looking at the graph and also how to work out the margin of safety?
Many Thanks
Can you tell me how you work out the break even point because i have read the book but its confusing looking at the graph and also how to work out the margin of safety?
Many Thanks
0
Comments

Hello,
Breakeven point = Fixed Costs / Contribution per unit
Eg.
Selling Price 100.00
Variable Cost (50.00)
Contribution 50.00
Fixed Costs = £ 5,000
Breakeven point = £ 5,000 / £ 50 = 100 units
100 units x £ 100.00 = £ 10,000 (breakeven point in £)
Margin of safety (using above figures):
If budgeted Value of Sales were for example £ 12,000
Margin of Safety = £ 2,000 / £ 10,000 * 100 = 20 %0 
HI,
Thanks for that, i have just tried to use that method when working out task 2.3 a) in June 2009 paper but it doesnt work.`
The question is
Selling price 80P
Marginal cost30P
Fixed cost £312500
Answer
£312,500/(50p/80p)= £500,000
I though it would be 
£80p30p = 50p312,500/0.50p=£625,000
Can you tell me where i am going wrong???
Thanks
Lucy0 
Your answer is correct.
625,000 represents the break even point in terms of units
ie:Fixed Cost / Contribution per unit = breakeven point (in units)
Therefore to find breakeven point in terms of £ = breakeven point (in units) x selling price (per unit)
Breakeven point 625,000 units * £ 0.80 = £ 500,0000 
Oh i see, thank you.0
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