2.2.3 break-even Flashcards
1
Q
break even
A
is the point at which a business does not make a profit of loss
2
Q
break even analysis
A
a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output
3
Q
contribution
A
contribution looks at the surplus made on each product sold by the business. it shows how many products need to be sold to cover the fixed operation cost
4
Q
contribution calculation
A
contribution = selling price - variable cost
5
Q
total contribution
A
contribution per unit x number of units sold
6
Q
break even output
A
fixed costs / contribution per unit
7
Q
margin of safety
A
the amount sales can fall before the break-even point
8
Q
advantages of BE
A
- gaining funding - required for business plans
- setting revenue targets
- decide appropriate pricing
9
Q
disadvantages of BE
A
- doesn’t give an insight into chances sales will meet this point
- data may be unreliable
10
Q
break even output
A
fixed costs ÷ contribution
