## Using break-even analysis to make decisions

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```Using break-even analysis to make decisions
By the end of this unit you should understand:
o	the meanings of break-even and contribution
o	how to calculate break-even output
o	how to draw and complete break-even charts
o	how to read a break-even chart and illustrate profit or loss
o	the impact of price and cost changes on break-even output and break-even charts
What are break-even and contribution?
	At the break-even level of output a business makes neither a loss nor a profit.
	Contribution can be defined as the difference between sales revenue and variable costs of production.
	Contribution is calculated through the use of the following formula:
Contribution = revenue - variable costs
Calculating break-even
The following information is needed for the calculation:
o	the selling price of the product
o	the variable cost of producing a single unit of the product
o	the fixed costs associated with producing the product.
This information is used within the formula set out below:
Break-even output = fixed costs/selling price per unit - variable cost per unit
The break-even chart
	Can be put a break-even chart on this slide, please and mark break-even point on it.
Break-even and changing variables
Break-even can deal with more complex circumstances including:
	analysing the impact of changing costs and/or prices on the profitability of the business
	deciding whether to accept an order for products at prices different from those normally charged.