2.2.3 break even

Question 1

Profit equation

Answer 1

Contribution per unit x margin of safety

Question 2

What is the break even point

Answer 2

The point at which revenue equals costs and the business is making neither a profit nor a loss

Question 3

What is the contribution of a product

Answer 3

How much profit you make from one sale

Question 4

Contribution formula

Answer 4

C= selling price - variable costs

Question 5

How can you find the break even point

Answer 5

BE= fixed costs- contribution per unit

Question 6

What is the margin of safety

Answer 6

The different between how many units you are selling vs the break even point, it’s how many sales you can drop without making a loss

Question 7

What are some limitations of break even analysis

Answer 7

-simple
-doesn’t take into account seasonality of products
-assumed every item is sold, some may be put on sale so the contribution would be lower

Question 8

What are some advantages of break even analysis

Answer 8

-easy to use
-helps to visualise how many products are needed to sell
-gives the business aims and goals