5 - Break Even Flashcards
What Is Break Even?
(2 Points)
~ Point at which the business is not making a profit or a loss.
~ TR = TC.
What Is Break Even Output?
Number of items that a business must sell to reach TR = TC.
What Is A Business Making Before Reaching Break Even?
Operating at a loss.
What Is A Business Making After Reaching Break Even?
Each additional unit sold contributes towards profit.
What Is Contribution Per Unit?
Difference between selling price per unit and variable cost per unit.
How Do You Calculate Contribution?
Selling Price - Variable Cost
What Is Total Contribution?
Difference between total sales revenue and total variable costs.
How Do You Calculate Break Even?
Fixed Cost / Contribution
What Is Margin Of Safety?
How much actual output is above the break-even level of output.
How Do You Calculate Margin Of Safety?
Actual Output Level - Break Even Level Of Output
What Variables Could Change On Break Even Charts?
(3 Points)
~ Fixed costs.
~ Variable costs.
~ Selling price.
What Are The Benefits Of Break Even?
(4 Points)
~ Simplifies complex information.
~ Can predict the outcome of changing variables.
~ Aids decision making, financial planning and forecasting.
~ Provides a target.
What Are The Drawbacks Of Break Even?
(4 Points)
~ Based on predictions.
~ Excludes external factors and does not adjust to changing conditions.
~ Ignores capacity constraints and inventory.
~ Short term focus, does not consider the long term.
