This document discusses how to calculate break even sales for a business. It defines break even sales as the level of sales needed to cover all variable and fixed expenses. It provides examples of typical fixed and variable expenses for a business. The document then shows how to calculate break even sales by taking total expenses and dividing by the gross profit percentage. It demonstrates this calculation and shows how the break even sales figure would change with different gross profit percentages. Finally, it notes some key assumptions related to the break even sales calculation.

1. Business Analysis & Improvement Systems
OPERATING A
SUCCESSFUL BUSINESS
Break Even Calculation
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2. Business Analysis & Improvement Systems
1. Definition Of “Break Even”
• Level of sales necessary to cover
all variable and fixed expenses
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3. Business Analysis & Improvement Systems
2. Fixed Expenses
• Do not vary relative to
production
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4. Business Analysis & Improvement Systems
3. Variable Costs
• Vary directly in relation to
increases in production
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5. Business Analysis & Improvement Systems
4. Sales Needed Depend On
Gross Profit Percentage
• Sales of $100,000
• Gross Profit 50% Generates $50,000
• Gross Profit 30% Generates $30,000
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6. Business Analysis & Improvement Systems
5. Typical List Of Expenses
Expense Fixed Variable
Expense Expense Total
$ $ $
Accountancy Fees 4,000 4,000
Advertising 40,000 40,000
Bank Charges 2,000 2,000
Cleaning 3,000 3,000
Depreciation – Plant & Equip 5,000 5,000
Electricity 5,000 5,000
Entertainment 1,000 1,000
Freight Out 500 500
General Expenses 500 500 1,000
Insurance 5,000 5,000
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7. Business Analysis & Improvement Systems
5. Typical List Of Expenses cont'd....
Expense Fixed Variable
Expense Expense Total
$ $ $
Interest 3,000 3,000
Lease Payments 20,000 20,000
Laundry 500 500
Motor Vehicle Expenses 5,000 5,000
Maintenance Agreements 2,000 2,000
Operating Expenses 3,000 3,000
Printing & Stationery 1,000 1,500 2,500
Rent 50,000 50,000
Subscriptions 1,000 1,000
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8. Business Analysis & Improvement Systems
5. Typical List Of Expenses cont'd....
Expense Fixed Variable
Expense Expense Total
$ $ $
Superannuation 4,500 4,500
Telephone 2,000 2,000 4,000
Travelling & Accommodation 4,000 4,000
Salaries 75,000
Wages 345,500 345,500
WorkCare 2,250 1,250
$195,750 $392,000 $587,750
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9. Business Analysis & Improvement Systems
6. Calculation Of Break Even Sales
.1 Total Expenses
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Divided by Gross Profit Percentage
Multiplied by
100 = $587,750 x 100 = $1,836,718
1 32 1

10. Business Analysis & Improvement Systems
6. Calculation Of Break Even Sales cont'd....
.2 Proof:
Sales $1,836,718
Gross Profit Percentage 32%
Gross Profit $587,750
Expenses $587,750
Result: Break Even
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11. Business Analysis & Improvement Systems
6. Calculation Of Break Even Sales cont'd....
.3 If Gross Profit Percentage was 60%:
Sales would be:
$587,750 x 100
60 1
Break Even Sales$979,583
Gross Profit $587,750
Less Expenses $587,750
Result: Break Even
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12. Business Analysis & Improvement Systems
6. Calculation Of Break Even Sales cont'd....
.4 If Gross Profit Percentage was 40%:
Sales would be:
$587,750 x 100
40 1
Break Even Sales$1,469,375
Gross Profit $587,750
Less Expenses $587,750
Result: Break Even
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13. Business Analysis & Improvement Systems
7. Assumptions Relating To The
Calculations
• The Expenses
• Average Gross Profit Percentage
• Fixed Costs and unavoidable Variable
Costs
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