Break even

Question 1

How does increasing selling price affect break even?

Answer 1

• Revenue line pivots upwards.
• Breakeven is reached at a lower level of output.
• Fewer sales will be necessary to break even as each
  sale generates more revenue, whilst costs haven’t
  altered.

Question 2

How does a fall in selling price affect break even?

Answer 2

• Revenue line pivots downwards.
• A higher level of output is necessary to break even.
• Each sale will earn less revenue & because costs
  haven’t been altered, more sales will be requires to
  break even.

Question 3

How does a rise in fixed costs affect break even?

Answer 3

• Parallel upward shift in fixed and total cost lines.
• Breakeven occurs at a higher level of output.
• More sales will be required to break even because
  the business has to pay higher costs before starting
  production.

Question 4

What will happen if there is a fall in fixed costs for breakeven?

Answer 4

• Parallel downward shift in fixed & total cost lines.
• Smaller output required to break even.
• Because the business faces lower costs, fewer sales
  will be needed to ensure that revenue matches costs.

Question 5

What happens if there is a rise in variable costs?

Answer 5

• Total cost line pivots upwards.
• Higher output needed to break even.
• Each unit of output costs more to produce, so a
  greater number of sales will be necessary if the firm
  breaks even.

Question 6

What happens if there is a fall in variable costs?

Answer 6

• Total cost line pivots downwards.
• Lower level of output needed to break even.
• Every unit of production is produced more cheaply, so
  less output & fewer sales are necessary to break even.