Break Even

Question 1

Break-even

Answer 1

Break-even is the point at which Total Revenue equals Total Costs so the business is making neither a profit nor a loss, TR=TC

Question 2

Contribution

Answer 2

Contribution is the amount that each unit produced ‘contributes’ towards the fixed costs of the business

Question 3

Contribution formula

Answer 3

Contribution = selling price - variable cost

Question 4

Full break-even formula

Answer 4

Fixed costs / contribution

Question 5

What does margin of safety show?

Answer 5

The margin of safety calculation shows the number of sales that could be lost before the business makes a loss

Question 6

Margin of safety formula

Answer 6

Actual sales - break-even level of sales