Finance · Both
Costs, Revenue, Profit & Break-even
Understanding costs and profit is essential for survival and decision-making.
Key formulas
• Total costs = fixed + variable
• Revenue = price × quantity
• Profit = revenue − total costs
• Contribution per unit = price − variable cost per unit
• Break-even = fixed costs ÷ contribution per unit
Using break-even
Shows the output needed to cover all costs.
Margin of safety = actual output − break-even output.
Limitations: assumes constant price/costs; simple model.
Worked example
Fixed costs £10,000; contribution £5. Break-even?
Solution: 10,000 ÷ 5 = **2,000 units**.
Practice questions
1. Profit formula?
2. What is break-even?