5.5 - Break-even Analysis

Question 1

decision making tool used to calculate the level of sales needed to cover all costs of production

Answer 1

break-even analysis

Question 2

diagrammatic representation of a firm’s costs, revenues and profits at various levels of output

Answer 2

break-even chart

Question 3

position on a break-even chart where the total cost line intersects the total revenue line. TC = TR

Answer 3

break-even point

Question 4

level of output that generals neither profit nor loss

Answer 4

break-even quantity

Question 5

sum of money that remains after all direct/variable costs have been deducted from sales revenue of a product

Answer 5

contribution

Question 6

difference between the selling price of a product and its variable costs of product (P-AVC)

Answer 6

contribution per unit (unit contribution)

Question 7

total costs exceed the total revenues (TC > TR); all levels of output below the break-even quantity

Answer 7

loss

Question 8

positive difference between a firm’s total revenue and its total costs

Answer 8

profit

Question 9

price set by a firm in order to reach break-even or a certain target profit

Answer 9

target price

Question 10

sales volume or level of output required to achieve the target profit

Answer 10

target profit output

Question 11

unit contribution (P - AVC) multiplied by the quantity of sales (Q); (P - AVC) x Q

Answer 11

total contribution