1.3.2 Business revenues, costs, and profits

Question 1

What is contribution per unit?

Answer 1

Selling price per unit - Variable cost per unit

Question 2

One advantage of understanding costs?

Answer 2

Helps in setting appropriate prices to ensure profitability.

Question 3

One disadvantage of cutting costs?

Answer 3

May compromise product quality and customer satisfaction.

Question 4

What is the break-even point?

Answer 4

The break-even point is the level of sales at which total revenues equal total costs, resulting in zero profit.

Question 5

One advantage of break-even analysis?

Answer 5

Helps businesses understand the minimum sales needed to avoid losses.

Question 6

One disadvantage of break-even analysis?

Answer 6

Assumes all units produced are sold, which may not always be the case.

Question 7

What are fixed costs?

Answer 7

Fixed costs are expenses that do not change with the level of output, such as rent, salaries, and insurance.