2.2.3 Break even Flashcards
What is break even?
When a business cost is equal to its profits
What is the formula for breaking even?
Fixed cost / contribution per unit
What are the 3 uses for breaking even?
-Set targets
-Identify profitable products
-Know how many sales need to be made to cover costs
What is the formula for the margin of safety?
current output - break even output
What does contribution look at?
the profit a business makes on an individual product
What is the formula for contribution per unit?
Selling price - variable cost per unit
What is the formula for total contribution?
Contribution per unit x output
What is the formula for break-even output?
Fixed cost / contribution per unit
What is the use of break-even?
-To identify profitable products
What is the limitation of break-even?
-It ignores external factors
Which line on a break-even chart is level?
Fixed cost
Which line on a break-even chart starts at the top of the fixed costs?
Total cost
What happens to break even when costs increase?
The break-even point would increase
as the business would have to sell more products/services to cover costs
What happens to break even when costs decrease?
The break-even point would decrease as the business wouldn’t have to sell as many products/services to cover costs
What happens to break even when revenue increases?
The break-even point would decrease as the business wouldn’t have to sell as much to cover costs
