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Unit 7 Management Accounting P2 M1 D1
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Lauren WhiteUnit 7: Management Accounting
Task 2
Forecast and Management Planning
P2 -Carry out break-even analysis for a selected organisation.
A businesses breakeven point refers to the point where a business is neither making a profit
or a loss. It allows a business to know how many units they need to sell before they start
making a profit. The breakeven point is calculated by taking into consideration the fixed
costs a business has to pay on a monthly basis, the variable costs involved with producing
the products and the amount the products they produce are sold for. The breakeven point
can be shown over a period of time. This means they can see how many units need to be
sold per month, per quarter and per year.
The formula used to calculate the breakeven point =
fixed costs / (selling price-variable costs)
Knowing the contribution can help a The Royal Jam Company know how many products
they need to sell in order to be covered. It focuses on how much profit can be made per
product.
The formula used to calculate contribution =
selling price – variable costs
The Breakeven Point for the Royal Jam Company
Fixed and Variable Costs
Rent: £120,000 per annum
Fixed salaries (non-production): £80,000 per annum
Additional casual wages: £6 per hour
Utilities: £2000 per quarter
Raw Material (ingredients/jars/label): £0.87 per jar
Insurance: £3000 per annum
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