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Extension Task

This task is produced courtesy of Keith Hirst, Head of Business and Economics at Wickersley School in South Yorkshire. Keith is also a Principal Examiner for a major awarding body.

Calculating Break-even Point: 'Posh Picnic Tables'

The table below shows an incomplete set of calculations for the production of picnic tables:

QuantityFixed CostsVariable CostsTotal costsTotal Revenue
0400004000 
10 500 1500
20 1000  
30    
40    
50    
60    

* Assume VC are constant. Each table sells for £150.

Picnic table

Can you calculate the break-even number of sales for 'Posh Picnic Tables'? Copyright: Whitney Jones, from stock.xchng.

Task 8

  1. Create a spreadsheet in Microsoft Excel.
  2. Make a copy of the above table.
  3. Use formulae to complete the calculations in the table. Make sure you understand how to use formulae before you attempt this.
  4. Use the spreadsheet to produce a graph showing:
    1. TC, FC, VC and TR.
    2. Label the lines and the axes.

Important: when selecting chart type from Chart Wizard choose 'XY (Scatter)'

Now, use the spreadsheet to answer these questions:

  1. If the company produced 60 tables, what would be the cost of producing them?
  2. What is the break-even point? (Be clear about what this means)
  3. Imagine the firm increases the price it charges for its tables to £200. It feels that this will be a good way of increasing revenue.
    • Change this on your spreadsheet. Now look at your chart. What is the new break-even level of output? What happened to the TR line?
  4. Explain the advantages and disadvantages for the business.

Further Task

Follow this link for the Weatherhead School of Management break-even analysis calculator. This is a neat little system that allows you to put in different figures for costs, price and so on and see what happens to break-even. The information is automatically charted for you! (http://connection.cwru.edu/mbac424/breakeven/BreakEven.html)

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