2.2.3 BREAK EVEN Flashcards
1
Q
what’s break even point
A
the point where total revenue is equivalent to total costs
2
Q
how do you calculate contribution
A
selling price - variable costs
3
Q
how to calculate total contribution
A
contribution per unit x number sold
4
Q
how to calculate break even
A
total costs / contribution
5
Q
how to calculate margin of safety
A
actual sales - break even
6
Q
uses of break even
A
- can be used as a planning tool
- can see how many products need to be sold to break even
- help to set sales targets
7
Q
limitations of break even analysis
A
- often too simplistic and assumptions are unrealistic
- effectiveness depends on quality of accuracy
- doesn’t take into account external influences
8
Q
advantages of break even
A
- quick and simple
- easy to interpret
- help spot problems
- can assist in applying for a loan
9
Q
disadvantages of break even
A
- its only a forecast
- assumes all products are made and sold
- costs may change
