2.2.3 Breakeven

Question 1

Breakeven

Answer 1

The point at which a business in not making a profit if a loss

Question 2

Break even output

Answer 2

Is the number of items that a business must sell to reach this point

Question 3

Contribution

Answer 3

The different between the sales revenue and the variable cost of each unit sold or made

Question 4

Contribution =

Answer 4

Selling price - variable costs

Question 5

Margin of safety

Answer 5

How much the current output is above the break even level of output

Question 6

Profit =

Answer 6

(Max output x breakeven) x contribution

Question 7

After a product is sold, the revenue is used to pay for two costs:

Answer 7

It’s own variable costs, contribution to the fixed costs of the business

Question 8

Contribution per unit is

Answer 8

The difference between the selling price and the variable costs each time an item is sold

Question 9

Total contribution =

Answer 9

Total sales revenue - total variable costs

Question 10

Breakeven output =

Answer 10

Fixed costs / contribution per unit

Question 11

Strengths of breakeven analysis

Answer 11

Allow business to calculate minimum number of sales needed before starting to make a profit, can calculate levels of profit and loss, can predict the outcome of changing variables, aids decision making

Question 12

Weaknesses of breakeven analysis

Answer 12

Based on predicated costs and revenues, even fixed costs can vary in reality, ignores changes in variable costs or selling price as items are brought in larger quantities, only indicates number of sales needed, not actual sales