Break Even Analysis

Break Even Analysis

Break Even Analysis

In our October 2017 Newsletter we discussed calculations of break
even analysis when purchasing a new asset.

Break even analysis can also be used when deciding to incur
additional costs. For example if the cost of employing a new
staff member will be $70,000 (consider all costs including ACC,
leave, KiwiSaver).

If gross profit is around 50% sales will need to increase by $140,000 to
cover the cost of the new employee.
It could be that orders are not being completed on time and customers are getting frustrated. For a company with $800,000 of annual sales, if they can retain 10% of their annual sales through improved customer service they will retain $40,000 of gross profit ($800,000 x 10% x 50% gross margin).

If the new employee can further assist to improve the annual gross profit by 2% (say $16,000 per year) they have contributed a total of $56,000 towards the annual costs of employment. In addition if they have been able to free up some of the owner’s time to work on the business this could further justify the cost.

For further information see our October 2017 Newsletter

Tuesday, 17th July 2018

"Kessels & Associates Ltd (trading as Kessels Ecology) has been a very satisfied client of DB Chartered Accountants for several years now.

We appreciate the professional yet approachable manner of David, Pam and the rest of the team.

They have a genuine interest in our business – a small but busy environmental science service consultancy - and are always on hand to assist. We value being able to regularly meet with David and to assess how the business is tracking one on one, with the opportunity to discuss future plans and options. David is also able to provide advice on a broad range of business development and strategy matters, which we’ve greatly valued.

We can’t recommend David and his team highly enough."

Gerry Kessels & Helen Percy
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