2.2.3 Breakeven

Question 1

breakeven point

Answer 1

where a total revenue earned for a product is exactly equal to its total cost
-business is making neither a profit nor a loss

Question 2

breakeven equation

Answer 2

breakeven= fixed costs / contribution

Question 3

how does identifying breakeven point help a business

Answer 3

allows them to understand how many items it needs to produce and sell to cover all its costs before it can start to make a profit

Question 4

margin of safety

Answer 4

this is the difference between the actual level of output of a business and its break-even level of output

Question 5

margin of safety equation

Answer 5

margin of safety= actual level of output - breakeven level of output

Question 6

what do charts identify

Answer 6

-fixed costs, total costs and revenue over a range of output
-breakeven point
-profit or loss made at each level of output (unit)
-margin of safety

Question 7

give some limitations of breakeven analysis

Answer 7

-less useful if business produces multiple products
-accuracy of this relies upon the accuracy and quality of initial data
-assumes all output is sold (some may be wasted)
-charts cannot be easily amended when conditions change
-revenue and total costs do not always have a linear relationship with output.

Question 8

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