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:
| Quantity | Fixed Costs | Variable Costs | Total costs | Total Revenue |
|---|---|---|---|---|
| 0 | 4000 | 0 | 4000 | |
| 10 | 500 | 1500 | ||
| 20 | 1000 | |||
| 30 | ||||
| 40 | ||||
| 50 | ||||
| 60 |
* Assume VC are constant. Each table sells for £150.
Can you calculate the break-even number of sales for 'Posh Picnic Tables'? Copyright: Whitney Jones, from stock.xchng.
Task 8
- Create a spreadsheet in Microsoft Excel.
- Make a copy of the above table.
- Use formulae to complete the calculations in the table. Make sure you understand how to use formulae before you attempt this.
- Use the spreadsheet to produce a graph showing:
- TC, FC, VC and TR.
- 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:
- If the company produced 60 tables, what would be the cost of producing them?
- What is the break-even point? (Be clear about what this means)
- 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?
- 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)