Accounting And Finance- Break-even Analysis

Question 1

Explain what is meant by break even

Answer 1

The business makes no lose but no profit

Question 2

What is contribution and how is it calculated

Answer 2

the amount of earnings remaining after all direct costs have been subtracted from revenue.
Total sales - total variable costs

Question 3

What is margin of safety and how is it calculated

Answer 3

The difference between the intrinsic value of stock vs its market price
Current sales level-break even point/ current sales level

Question 4

Evaluate break even analysis on business stakeholders

Answer 4

helps you to determine at what point your business – or a new product or service – will become profitable

Question 5

Evaluate the usefulness of breakeven analysis on business

Answer 5

Highlights the importance of keeping fixed costs low and how much sales need to drop in order to make a loss

Question 6

How can a business lower its break-even point

Answer 6

Improve sales mix, keeping fixed and variable costs per unit low

Question 7

What is a stepped fixed cost

Answer 7

a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached.

Question 8

Evaluate special order decisions

Answer 8

situations in which management must decide whether to accept unusual customer orders, multiply the number of units in the special order by the contribution margin per unit.