2.2.3 Break-even

Question 1

How do you calculate contribution?

1

Answer 1

• Selling price - variable costs per unit

Question 2

How do you calculate break even?

1

Answer 2

• Fixed costs

Contribution

Question 3

How do you calculate margin of safety?

1

Answer 3

• Actual (given) sales - break even output

Question 4

What are the limitations of break even analysis?

4

Answer 4

• VC assumed to ^constantly
• Assumes all output is sold in same time period
• Only sell 1 product at same price
• Static model (dynamic)

Question 5

How may variables costs actually reduce as output increases?

1

Answer 5

• Bulk buying discounts