Cost, Revenue & Profit

Break-even analysis, mark-up and margin

Cost, Revenue and Break-Even

Businesses must understand their costs to set prices correctly. Fixed costs stay the same regardless of production (rent, salaries). Variable costs change with production (materials, packaging). Revenue is income from sales. Break-even is the point where revenue equals total costs (no profit, no loss).

Example

Break-Even Calculation

Fixed costs: R10 000/month (rent + salary) Variable cost: R20 per item (materials) Selling price: R50 per item Contribution per item: R50 - R20 = R30 Break-even = Fixed costs ÷ Contribution per item = R10 000 ÷ R30 = 334 items per month Sell more than 334 = profit! Less than 334 = loss. Mark-up = (Selling price - Cost) ÷ Cost × 100 = 150%

Note

Remember

Mark-up % = (profit ÷ cost price) × 100. Margin % = (profit ÷ selling price) × 100. These are different! Knowing your break-even point tells you the minimum you must sell to survive. Always include ALL costs (don't forget rent, electricity, transport).

Key Vocabulary

Fixed costsCosts that stay the same regardless of how much is produced

Variable costsCosts that change depending on how much is produced

Break-evenThe point where total revenue equals total costs

Mark-upThe percentage added to cost price to get selling price

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Fixed costs

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