3.2c Consolidate breakeven Flashcards
What is the break even point?
The break even point is the point where revenue received meets all the costs of a business
What is break even point in units?
Break even point in units=fixed costs/(sales price-variable)
What is he break even point in currency
The break even point in currency tells the business how much money needs to be taken to meet he break even point
How do you work out the break even point in currency?
Break even point in units x sales price
When a business meets its break even point what does it show?
It shows that from this point the business is making profit
What is the margin of safety?
This is how much the sakes can fall until the business meets its break even point again
How do you work out the margin of safety?
Actual or budgeted sales-break even sales
What are the labelled axis on a break even diagram?
Costs and revenue are on the y axis and the number of products and services sold are on the x axis
In the businesses early stages, why is the cost more likely to be greater than the revenue?
Because the business needs to invest in the equipment the business needs in the early stages
Why is knowing the break even point useful?
It is useful because it allows us to make targets as to how much out revenue should be
What is the break-even point?
The point at which a business’s revenue matches the total costs exactly.
What is meant by the term break-even level of output?
It is the amount of product or services that must be sold to reach the point of matching the cost.
What does the break-even point in units tell us?
It tells you how many units are needed to be sold in order to meet the break-even point.
What is the formula for calculating break-even point?
break-even point in units= fixed costs / (sales price - variable)
State and explain the other way of calculating the break-even point?( state the formula in your answer)
By using the break-even point in currency which tells a business the amount of money needed to meet break-even. They calculate this by using the formula, Break-even point in currency= Break-even point in units x sales price.
Explain what is meant by the margin of safety.
The margin of safety means the need of continuation and growth, after meeting the break-even, to allow a business to succeed. This means a business must sell enough of their product or service to allow significant income.
Give the formula needed to work out the margin of safety.
Margin of safety= actual or budgeted sales - break-even sales
What does a break even diagram present?
A break-even diagram presents the points of sale and the point at which break-even is met.
How would you draw a break-even diagram?
You would place Costs and revenue along the vertical axis(y axis) and the number of product/ services sold along the horizontal axis(x axis). Then insert the data needed. Firstly Fixed costs is plotted onto the graph and can be drawn as a straight line. Then work out the variable cost per unit, taking into consideration ingredients, electricity etc.
Selling Price per unit- £17
Fixed expenses-
Selling and Administrative- £13’000
Interest Expense- £10’000
Variable Expenses-
Selling and Administrative- £3
Costs of goods sold- £4
Using the data above- If the company wants to earn a profit of £42,000 instead of breaking even, what is the number of units the company must sell? (contribution of margin= £10)
Fixed Expenses= £130,000 + £10'000
£140'000
£140'000 + £42'000= £182'000
£182'000 / Contribution of Margin =
£182'000 / £10= 18'200
ANSWER= 18'200 units
