2.2.3 Break-even

Question 1

Define fixed costs and give two examples

Answer 1

Fixed costs are costs that do not change with output eg rent and insurance

Question 2

Define variable cost and give two examples

Answer 2

Variable costs are costs that do change with output eg raw materials and stock

Question 3

What is the formula for total variable costs

Answer 3

VCPU x Quantity

Question 4

What is the formula for total costs

Answer 4

Fixed costs + variable costs

Question 5

What is meant by break even

Answer 5

Is the output where total revenue equals total costs or the output where profit is zero

Question 6

What is the formula for calculating break even

Answer 6

Fixed costs/ (SPPU - VCPU)

Question 7

What is meant by contribution per unit

Answer 7

SPPU - VCPU, is the amount left out of the sale of one unit after variable costs have been made - this amount can then contribute to paying of the fixed costs of production

Question 8

What is the formula for contribution per unit

Answer 8

SPPU - VCPU

Question 9

What would happen to the break up output if fixed costs increase

Answer 9

It would increase

Question 10

What would happen to the break even output if variable cost per unit increase

Answer 10

It would increase