2.2.3 Breakeven

Question 1

What is breakeven analysis

Answer 1

A management tool to predict how many products will need to be sold before a firm stops making a loss and begins to make a profit

Question 2

At breakeven point how much is profit

Answer 2

0

Question 3

What is breakeven

Answer 3

A method of comparing a firms revenue with its fixed and variable costs to identify the sales level at which:
total revenue = total costs

Question 4

Breakeven =

Answer 4

Fixed costs ÷ contribution per unit

Question 5

How does a firm employing more salaried staff effect breakeven

Answer 5

Salaries are fixed costs so there will be an increase in fixed costs and an increase in total costs so breakeven also increases

Question 6

How does a firm increasing its prices effect breakeven

Answer 6

The total revenue gradient increases so the breakeven point decreases

Question 7

How does automation replacing direct labour effect breakeven

Answer 7

Automation indicates you have increased in fixed costs and there will be a reduction in variable costs due to direct labour being variable costs.
Therefore, we don’t know total costs or breakeven

Question 8

How does inflation pushing up variable costs effect breakeven

Answer 8

Variable costs increase and total costs increase so therefore breakeven increases

Question 9

How does a price war forcing a price cut effect breakeven

Answer 9

There is a price cut so there is a decrease in total revenue gradient and the breakeven point increases

Question 10

How does an economic recession cut demand but prices are unchanged effect breakeven

Answer 10

There is a decrease in demand and so the margin of safety also decreases