Once they have these figures, they can calculate the Break Even point. The best way to demonstrate how you calculate the Break Even point to the participants is through the following example.
Example: Calculation of the Break Even Point 1. Total for Fixed Costs: Euro1,500 a month
( includes rent, insurance, office equipment etc)
2. Variable cost of producing one can of drink:
10 cents( that is Euro 0.10)
3. Selling price to the customer / member:
25 cents( that is Euro 0.25)
4. Contribution of each product to the fixed costs:
Sales price – variable cost 5. Break Even point: Fixed Costs / Contribution
Therefore the contributionfrom each can sold is: 25c – 10c = 15c( Euro 0.15)
Therefore to calculate how many cans need to be sold to break even and cover all costs: 1,500 / 0.15 = 10,000 cans
Thus, 10,000 cans need to be sold to break even and cover all costs. Any cans sold over and above the 10, 000 can will make a unit contribution to the profits of the social start up.
If this sales amount is feasible, then there is a sales target to work towards. However, if it is not feasible, the participants should consider: 1. Increasing or decreasing the sales price 2. Identifying areas where they can make changes to fixed and / or variable costs
Participants, especially those responsible for the financial documentation and planning of the social start up, should now work on identifying the break-even point for their social start up. Clearly, the variable and fixed costs need to be identified first! This exercise should now lead to a discussion of the break-even’ s feasibility, what changes need to be instilled in the variable and fixed costs etc.
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