AS2 TP9 Flashcards
what are fixed costs
costs that do not increase as outputs increase
how are variable costs calculated
variable cost per unit x no. produced
how are total costs calculated
fixed costs + variable costs
how is revenue calculated
selling price x units sold
how is total profit calculated
total revenue - total cost
how is contribution calculated
selling price - variable costs (per unit)
what is break even
unique point where total revenue of the business is exactly the same as the total cost of business
how is break even calculated
fixed costs / contribution per unit
how is Margin of safety calculated
actual output - output at break even
how can contribution be calculated and decrease break-even
increase in selling price no change to vc
decrease in vc with no change to selling price
what will decrease contribution and increase break even
decrease in selling price with no change to vc
increase in vc with no change to selling price
what are the advantages of break even analysis
good budget planning approach which is inevitable to managers in order to monitor expectations and make changes
allows visual representation of sales rev and costs
immediate identification of break even and Margin of safety
disadvantages of break even analysis
unpredictable events occur which make BE analysis unreliable
many of the factors are assumptions based on historical data
sales revenue is not fixed and can fluctuate due to changes in demand
