Break-Even Charts Essay

Business Report

Break-Even Charts

Common Assessment Task

A break-even chart is an infographic representing the costs at multiple levels of business activity. Its purpose is to categorise and summarise the different types of costs. The information required in order to produce a break even chart are the fixed costs which are costs that are independent on the output produced, total costs which are costs that vary depending on product, variable costs, added to the fixed costs and the revenue is the total income by the sales of the particular product. The break-even is able to be calculated through the chart or through the formula of Break-Even.

Break Even Point: Fixed Costs/(Selling Price of the Product - Variable

These impacts of changes include the break-even point, the requirements to achieve their profit margin, the product costs and the total costs. The break-even point is affected as in Part A, 60,000 bunches of banana were to be sold in order to break even whereas in part B, 90,000 bunches of banana were to be sold in order to break even. This shows that Sherston would have to sell 30,000 more units in order to equalise all the production costs. In Part A, $96,000 was sufficient in order to break even but an extra $30,000 is required to break-even in part B. This depicts that Sherston is required to gain an extra $30,000 of funds to begin with their margin of profit. The product costs or the selling price has increased by 20 cents which results in a decrease of $20,000 of total profits in Part B when compared from part A. Sherston’s variable costs have increased by $0.10 which shows that the variable costs required to produce 100,000 units of bunches of bananas have increased by $10,000 whereas in terms of fixed costs, they have increased by $3000. This is quite a drastic increase in fixed costs. Referring to the statistics that have been pointed out in the two tables above and the impacts of change, I would state that the impacts that these changes would drop the profit of Sherston Banana Company drastically in Part B when compared to Part

In order to still receive sales in a sufficient rate from customers and to stay within market competition Sherston’s Banana Company would have decreased their selling price lower or as the same price as their competitor’s products. A potential reason for the increase in fixed costs according to me would be a demand in increase of rent by the landlord due to either the contract being withdrawn or ended. The rent would have increased due to the landlord either knowing about the pressure on Sherston’s Banana Company and the landlord would have taken this opportunity as profit or the landlord’s various personal or financial reasons. There are other multiple reasons that the fixed costs could have an increase such as salaries, insurance or a hike in transportation costs such as vehicle maintenance and petrol due to its limited