2.2.3 Flashcards
What is break-even?
The point at which a business is not making a profit or a loss
At this point, total costs must be the same as what?
Total revenue
What is break-even output?
The number of items that a business must sell to reach this point
What is meant by contribution?
The difference between the variable costs of one unit and its selling price
What is the formula to work out contribution?
Contribution = selling price - variable cost per unit
What is contribution per unit?
The difference between selling price per unit and variable cost per unit
What is total contribution?
The difference between total sales revenue and total variable costs
How do you calculate break-even point?
Break-even point = fixed costs / contribution per unit
What is meant by ‘margin of safety’?
How much actual output is above the break-even level of output
What is the formula for margin of safety?
Actual output level - break even level of output
