The break even point is the level of output where total costs equal total revenue. It is calculated by determining fixed costs, variable costs, and revenue at different levels of output. The margin of safety is the amount of additional units sold above the break even level, and shows the cushion against losses.

1. Break Even The break even point is the level of output where a firm will just cover its costs. To calculate this we need to know the revenue for the year (turnover) and the fixed, variable and total costs. TASK: How do we calculate turnover, total costs and profit?

2. Calculating Break Even 0 500 0 500 0 1050 900 750 600 450 300 150 Revenue 1200 1100 1000 900 800 700 600 Total Costs 700 600 500 400 300 200 100 Variable Costs 500 500 500 500 500 500 500 Fixed Costs 700 600 500 400 300 200 100 Output

3. Break Even Graph

4. Task 0 1000 0 1000 0 3500 3000 2500 2000 1500 1000 500 Revenue 3100 2800 2500 2200 1900 1600 1300 Total Costs 2100 1800 1500 1200 900 600 300 Variable Costs 1000 1000 1000 1000 1000 1000 1000 Fixed Costs 700 600 500 400 300 200 100 Output

5. Margin of Safety The margin of safety is the number of products sold above the break even point. So if a company breaks even selling 580 products a week, but they actually sell 700 products, their margin of safety is 120. Calculate the margin of safety on your graph if output is 700.