[MUSIC] Another way of looking at break even analysis is to use the Contribution Margin Method. This method uses contribution margin per unit of output that is required to cover those fixed costs. Okay, so we've looked at the equation method. Let's have a look at an alternative using the unit contribution margin. We'll use the same example, same values, so we have to calculate the break even volume of sales. Once again, let x be the units required. The number of units. The unit contribution margin is calculated as the unit selling price minus the unit variable cost, that's a key concept in management accounting. And therefore, we can say that, x the number of units will equal the fixed costs plus any net profit divided by the unit contribution margin. And that will give you a break even point, if we set net profit to 0. So in our example we can say the x is (150,000 + 0) / (10- 4). Or (150,000/6), and we get the same answer as previously, x is 25, 000 units. That's a quick method of calculating your break even point. It's the fixed costs simply divided by the contribution per unit. A slightly different alternative, but still using the contribution margin ratio. Once again, using the same values as before, this time we'll calculate break even, but not in terms of units, in terms of the sales revenue needed to break even. We can make use of the contribution margin ratio to calculate these sales that are required just to cover the fixed costs, and therefore to break even. The contribution margin ratio is the unit contribution margin divided by the revenue per unit, expressed as a percentage, so multiplied by 100. So we already know that the contribution margin is 10 pounds minus 4, or 6. And if we divide that by the revenue per unit of 10, multiply that by 100, we know that the answer is 0.6 or 60%. Simply, the contribution per unit divided by the selling price, multiplied 100. If we use the same values once again, the answer to our question is, what is break even point in terms of sales revenue? We can say the answer, the number of units if you wish, x equals fixed cost plus net profit divided by contribution margin ratio. So in this case, rather than dividing by 6, we're dividing by 0.6 or 60%. So x equals 150,000 + 0, remember we're not looking for a profit, we're looking for break even, divided by 60% equals 250,000 pounds. So 150 divided by 0.6. And that is the revenue needed to break even. [MUSIC]