5.5 Break-even analysis

Question 1

What does contribution refer to?

Answer 1

Contribution refers to how much a product contributes to the fixed costs of a business

Question 2

What is the formula for contribution per unit?

Answer 2

Price-Variable Cost per Unit

Question 3

What are the 2 formulas for TCONT?

Answer 3

Sales Revenue-Total Variable Costs

Contribution per Unit x Quantity sold

Question 4

What is the 2 formulas for profit?

Answer 4

Total Contribution-Total Fixed Costs

Sales Revenue-Total Costs

Question 5

What are the 4 points needed to draw a break-even chart?

Answer 5

-Fixed costs
-Variable costs
-Total costs
-Total revenue

Question 6

What is margin of safety?

Answer 6

Margin of safety is the range of output over which profit is made

Question 7

What is the formula for margin of safety?

Answer 7

Current output- BEQ

Question 8

What are the 2 methods of calculating BEQ?

Answer 8

1. The contribution per unit method
2. Total Costs= Total Revenue

Question 9

What is the formula for the contribution per unit method to find BEQ?

Answer 9

Fixed costs/Contribution per Unit

Question 10

What is the formula for Total costs=Total revenue to find BEQ?

Answer 10

FC+VC= QxP
Solve for Q