3.2c Consolidate breakeven

Question 1

What is the break even point?

Answer 1

The break even point is the point where revenue received meets all the costs of a business

Question 2

What is break even point in units?

Answer 2

Break even point in units=fixed costs/(sales price-variable)

Question 3

What is he break even point in currency

Answer 3

The break even point in currency tells the business how much money needs to be taken to meet he break even point

Question 4

How do you work out the break even point in currency?

Answer 4

Break even point in units x sales price

Question 5

When a business meets its break even point what does it show?

Answer 5

It shows that from this point the business is making profit

Question 6

What is the margin of safety?

Answer 6

This is how much the sakes can fall until the business meets its break even point again

Question 7

How do you work out the margin of safety?

Answer 7

Actual or budgeted sales-break even sales

Question 8

What are the labelled axis on a break even diagram?

Answer 8

Costs and revenue are on the y axis and the number of products and services sold are on the x axis

Question 9

In the businesses early stages, why is the cost more likely to be greater than the revenue?

Answer 9

Because the business needs to invest in the equipment the business needs in the early stages

Question 10

Why is knowing the break even point useful?

Answer 10

It is useful because it allows us to make targets as to how much out revenue should be

Question 11

What is the break-even point?

Answer 11

The point at which a business’s revenue matches the total costs exactly.

Question 12

What is meant by the term break-even level of output?

Answer 12

It is the amount of product or services that must be sold to reach the point of matching the cost.

Question 13

What does the break-even point in units tell us?

Answer 13

It tells you how many units are needed to be sold in order to meet the break-even point.

Question 14

What is the formula for calculating break-even point?

Answer 14

break-even point in units= fixed costs / (sales price - variable)

Question 15

State and explain the other way of calculating the break-even point?( state the formula in your answer)

Answer 15

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.

Question 16

Explain what is meant by the margin of safety.

Answer 16

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.

Question 17

Give the formula needed to work out the margin of safety.

Answer 17

Margin of safety= actual or budgeted sales - break-even sales

Question 18

What does a break even diagram present?

Answer 18

A break-even diagram presents the points of sale and the point at which break-even is met.

Question 19

How would you draw a break-even diagram?

Answer 19

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.

Question 20

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)

Answer 20

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