- BTEC Nationals Business
- Unit 7: Management Accounting
- Assessment criteria covered in this activity; P2, M1, D1
You have been employed by The Bee Honey Company board of directors to advise them on their business financial position. As part of this role they have tasked you with producing a financial report focused on break even. The directors have provided you with the following financial data to help you with the production of this report.
- Rent £120,000 per annum
Salaries £80,000 per annum
Wages £6 per hour
Utilities £2000 per quarter
Raw Materials (Honey/ Jars/ Labels) £0.87 per unit
Insurance £3000 per year
There are 10 production staff in the business. Each employee is expected to work 35 hours per week and produces on average 150 jars of honey per hour.
Currently each jar of honey is sold at a £3.50 to customers. This year the business has sold 2,000,000 jars of honey.
Contents of your Report
Your report should include the following;
- Define the term break even analysis and include the formula that you will use to calculate the break even point in this report.
Calculate the break even point for the business above, ensuring that you show your working
Calculate the margin of safety for this business, ensuring you show your working
Calculate how much profit the business will be making
Produce a break even chart showing the break even point. This chart should be labelled showing; the break even point, area of profit, area of loss and margin of safety.
Assess how realistic is the break even point for this business? (consider the cost of rival products, margin of safety, economic position)
Evaluate the limitations of using break even analysis as a financial management tool for the business.