3.3 Break-even analysis

Question 1

Contribution per unit

Answer 1

The difference between the selling price per unit and variable cost per unit

Question 2

Total contribution

Answer 2

The unit contribution (P-AVC) multiplied by the quantity of sales. Can also be referred to as the firm’s gross profit.

Question 3

Break-even chart

Answer 3

A graphical method that measures the value of a firm’s costs and revenues against a given level of output

Question 4

Break-even quantity

Answer 4

A measure of output where total revenue equals total costs

Question 5

Break-even point

Answer 5

The position on a break-even chart where the total cost line intersects the total revenue line

Question 6

Break-even revenue

Answer 6

The revenue required to cover both the fixed and variable costs in order for a firm to break even

Question 7

Margin of safety

Answer 7

The difference between a firm’s level of demand and its break-even quantity

Question 8

Target profit output

Answer 8

The level of output that is needed to earn a specified amount of profit