Break-Even Analysis
Business Management: IB Diploma, topic 3.3.2
Break-Even Analysis
Businesses can use breakeven analysis to predict the level of output at which total costs and total revenues will be the same.
Contribution per unit
- Contribution per unit is the amount of revenue which contributes to covering a business' fixed costs after the variable cost per unit has been taken away from revenue per unit.
Calculating contribution per unit
- Contribution per unit is calculated as the selling price per unit – variable costs per unit.
Total contribution
- Total contribution is the amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away.
Calculating total contribution
- Total contribution is calculated as total revenue – total variable costs.
Test yourself on Break-Even Analysis
A business sells pens for £0.8 per unit. The variable cost per unit is £0.4. What is the contribution per unit?