Breakeven revenue

anniebabe

I seem to have forgotten how to work out breakeven revenue - panic panic - exam monday.
please help.

donnas1977

Hi Annie

is break-even not your Budgeted Units or Costs/Contribution Cost

Donna

anniebabe

not the breakeven units formula - fixed costs over contribution. But the formula for breakeven revenue - thought it was fixed costs over profit volume ratio - but i seem to be doing something wrong - working on exam June 2007 task 2.2.

Marga

the amount of revenue needed to cover both fixed and variable costs so your business neither makes nor loses money


(Fixed Costs) / (1 - (Variable cost per unit/Selling Price per unit))

= Revenue to Break-even

donnas1977

god my brain!, I have just printed off that paper, I will have a look at that the now

donnas1977

Hi Anne

Ok, I have worked out the following for 12,000 mile

SR - 120,000 (taken from task 2.1)
FC - 36,450 (taken from task 2.1)
Contribution - 97,200 (taken from task 2.1)
Contribution per mile - 8.10 (97,200/12,000)
Breakeven no of miles - 4500 (36450/8.10)
breakeven sales revenue - 45,000 (taken from task 2.1)

margin of safety in nos - 7500 (taken from task 2.1)
margin of safety in £ - 75000 (taken from task 2.1)
margin of safety % for 12,000 is 62.5 (7500/12,000 x 100)

Donna

anniebabe

Hi Donna
I got stuck at the sales revenue - and still not sure about it tbh!

anniebabe

thanks Marga - still not sure about it though tbh!

donnas1977

Hi annie

For 10,000 miles the sales revenue is £100,000. Divide the £100,000 by the 10,000 gives you a cost of £10 per mile. Take the £10 and times it by the 12,000 miles , giving you the £120,000 sales revenue

Donna

anniebabe

its just the breakeven figure I am struggling with Donna - thought i had all this in the bag - but my brain has seized up.

donnas1977

i just realised the break even figure isn't provided from task 1, am not entirely sure on this either. I am just heading home now, will have a look at this when i get home and see if I can work out how they got the 45,000

emma123

gonna try to see if can work this out for u annie

is the selling price 10.00?

donnas1977

Hi emma yeah the selling price is £10

donnas1977

Is it.not your breakeven miles x by the selling price per mile.?

emma123

think the formula is fixed costs/selling price. thats what i've learned

emma123

think the formula is the breakeven in units x selling price. thats the forumula i've learned

emma123

yeh donna think thats right!

donnas1977

yep it is your breakeven units x selling price. I just looked at notes when I got in.

Donna

anniebabe

I always thought that Breakeven Sales Revenue was Fixed costs divided by profit volume ratio

donnas1977

Hi Annie

I just done it based on the p/v ratio and got the following

36450/0.81* = 45,000

8.10/10

maybe it was a fluke i got the answer as 45,000 as well doing it my way! must remember that one as i totally forgot about the pv ratio formula

Donna

anniebabe

think i am just getting in a flap with it all now - feel like ive forgotten everything.

SandyHood

Try to use the

Total fixed cost
tot PV ratio

formula.

The break even units x price formula assumes that there is only one product.
And there are times when you round up the break even units, so multiplying by a rounded up number won't necessarily give you the correct revenue.

Total fixed cost
tot PV ratio

applies in lots of scenarios such as shops or pubs/restaurants where the idea of a single product covering the fixed cost would be unrealistic.

emma123

Sandy

I read somewhere (Osborne book maybe) that you can use breakeven units x selling price to check your answer. This correct?