3.3 Break Even Analysis Flashcards
1
Q
Revenue (r) (TR)
A
Income from sale of goods and Services
P x Q
2
Q
Fixed Costs (FC) (TFC)
A
Costs that do not change without output
3
Q
Variable costs (VC) (TVC)
A
Costs that change with output (increase as quantity increases)
4
Q
Total Costs (TC)
A
= TFC + TVC
5
Q
Profit (P)
A
Profit = TR - TC
6
Q
Break Even Analysis Formula
(Quantity)
A
7
Q
Break Even / Break even Quantity (BEQ)
A
- Where profit = 0
- Total costs = total revenue
8
Q
Break even chart creation steps
A
- Calc BEQ
- Draw Axis w correct max capacity and revenue (quantity at bottom)
- Fixed Costs line (horizontal)
- Total revenue starting at (0,0) and ending at Max capacity, figure by substituting into BEQ
- Add Total Costs starting at Fixed costs line and ending at max capacity
6.Calc Margin of safety and label all, add dotted lines
9
Q
Contribution Per Unit (CPU)
A
- The profit made from selling each product
- Price - Variable Cost
10
Q
Calculate: Output required to make profit of $xxx
A
Profit = Revenue - Fixed costs - Variable Costs
P = PQ - FC - VCQ
Substitute to find Q. (Quantity)