8 Break Even Point

Question 1

What is the break even point?

Answer 1

where total costs = total revenue (neither a profit nor a loss is made)
in units = fixed costs/contribution per unit

Question 2

What is a margin of safety?

Answer 2

the excess of planned or actual sales above break-even point

This can be expressed as a percentage of the sales estimate

Question 3

What are the limitation of break-even?

Answer 3

Unrealistic assumptions – semi-variable cost
All units produced are not always sold
Variable costs change with output (bulk discount)
Many businesses make more than one product

Question 4

What are the uses of break even?

Answer 4

Can add the cost of marketing to fixed costs to see extra sales quantity need to achieve.
Where looking to offer a discount can look at extra quantity to maintain profits