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Break-Even analysis made simple!
Transcript of Break-Even analysis made simple!
Bentley breaks in Billy
Bentley, Business owner; Owns 150 cafés in 3 regions.
Peaches, Bentley’s girlfriend and Managing Partner at Deloitte.
Billy, Peaches’s son. He has an idea about a new retail plan for Bentley’s café chains.
What are we doing here?
Meeting between Bentley and Billy
Help Billy with the finance part of his plan
How many products shall be sold to break-even or even make some profit?
Application of break-even
Amount and Quality of study time VS Grade
0/20 - losses
10/20 - breakeven point
20/20 - profits
Bentley is bored
How and where to spend the cash
Appealing Idea: from pastry café to retail trade café.
Expanding = great idea.
Sell 15 258 items to reach a 50 000€ profit after tax. This also means that Bentley would need to sell 10 680 kg of coffee, 3 051 T-shirts and 1 525 cups…
THE way that Bentley spends his extra cash and it would also involve him more in the business as an expansion would mean a new strategy in all departments: production, relations with suppliers, marketing, negotiation….
Worst Case Scenario
Conservative Approach: lowest possible margin
Breakeven Quantity needed to pay for investment
if we increase the quantity sold by one, the business starts making profits.
PS: To find this break even quantity, we computed the Contribution Margin (CM)
Worst Case Scenario WITH PROFIT
Income before tax: 83 333€
Target Income : 50 000€ after tax