N4 Entrepreneurship & Business Management Step 3
Calculate the break-even point.
1 Break-even (units) = fixed costs
gross profit / unit
= R12 000 R60
= 200 CDs
2 Break-even (sales) = fixed cost
gross profit %.
= R12 000 40%
= R30 000 Answer: The break-even point for the business selling only CDs is therefore R30 000.
Calculations: 1. Refer back to Lindiwe’s Scarf selling business idea. 1.1 Calculate her breakeven point if all her fixed costs amount to R1875. 1.2 Do you think this is a good business idea?
2. Refer back to the street vendor florist. How many bunches of flowers must the street vendor sell to break-even?
2.9.4 Calculating the break-even point for many products
In order to calculate the break-even point for multiple products, you will need to do the following: • Categorise products • Calculate the average cost price of each group. • Calculate the average selling price of each group. • Calculate the gross profit for each group. • Now treat each group as if it were a product, and calculate the percentage of sales for each group.
• Then calculate the weighted average gross profit percentage. • Calculate the breakeven point.
Example:
Calculate the break-even point for multiple products.
CDs 4Africa decided to sell DVDs as well as CDs. The selling price for each DVD is R250 and the cost price R170. The owner expects DVDs to make up 40% of total sales and CDs 60%. Introducing DVDs will increase the fixed costs of the business to R15 000.
Step 1
Calculate the gross profit of each product or group of products. CDs
Selling price Cost price
Gross profit 82
R150 R90 R60
DVDs R250 R170 R80
PAUSE FOR THOUGHT
The first R60 (for CDs) and R80 (for DVDs) contribute towards covering your fixed cost and thereafter towards profit. To calculate the combined break-even point you must first calculate the weighted average gross profit percentage (WAGPP%). Only then can you calculate the break-even point.
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