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Essay text:
To work out the break even point of a business you need 3 important components which are:
1. Fixed costs, which are not usually associated with production- these are costs that are at a set price and will not change if income is high or low e.g. Rent and insurance.
2. Variable costs- these are costs that change depending on amount of use and output of sales and the capacity of production e.g. Electricity, parts and materials.
The fixed costs and the variable costs amount to the total costs.
3. Selling price- The price at which they are going to sell their product or service.
When you have calculated break even and found the point at which it is you can then work out where your margin of safety is...
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