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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