3.3 Break Even Analysis Flashcards
1
Q
What is BEA?
A
A method to find out the min level of sales necessary for a firm to just start to make a profit
When total revenue = total costs
2
Q
Formula for Break Even Quantity (BEQ)?
A
Fixed costs/contribution
3
Q
Components of BEA? [4]
A
Total revenue
Total costs
Variable costs
Fixed costs
4
Q
Defi of margin of safety
A
How much sales can fall before the business reaches its break-even point
5
Q
What are some assumptions of BEA? [4]
A
Fixed costs paid regardless of output level
Variables increase @ constant rate
Every unit produced is sold
Selling price remains constant
