Breakeven revenue

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anniebabe
anniebabe Registered Posts: 595 Epic contributor 🐘
in AAT Level 3 (Level 6 in Scotland)
I seem to have forgotten how to work out breakeven revenue - panic panic - exam monday.
please help.

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  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    Hi Annie

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

    Donna
  • anniebabe
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    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
    Marga Registered Posts: 981 Epic contributor 🐘
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    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
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    god my brain!, I have just printed off that paper, I will have a look at that the now
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    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
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    Hi Donna
    I got stuck at the sales revenue - and still not sure about it tbh!
  • anniebabe
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    thanks Marga - still not sure about it though tbh!
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    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
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    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
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    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
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    gonna try to see if can work this out for u annie

    is the selling price 10.00?
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    Hi emma yeah the selling price is £10
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    Is it.not your breakeven miles x by the selling price per mile.?
  • emma123
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    think the formula is fixed costs/selling price. thats what i've learned
  • emma123
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    think the formula is the breakeven in units x selling price. thats the forumula i've learned
  • emma123
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    yeh donna think thats right!
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    yep it is your breakeven units x selling price. I just looked at notes when I got in.

    Donna
  • anniebabe
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    I always thought that Breakeven Sales Revenue was Fixed costs divided by profit volume ratio
  • donnas1977
    donnas1977 Registered Posts: 182 Dedicated contributor 🦉
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    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
    anniebabe Registered Posts: 595 Epic contributor 🐘
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    think i am just getting in a flap with it all now - feel like ive forgotten everything.
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    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.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • emma123
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    Sandy

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

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