Break Even Flashcards
1
Q
Total costs
A
Fixed costs x variable costs
2
Q
Axis for grid
A
X axis - output
Y axis - revenue costs
3
Q
What to plot
A
Total revenue and total costs
4
Q
Where is the break even point
A
Where the two lines intersect = break even output (say units)
5
Q
How to work out margin of safety
A
Actual output - break even output
6
Q
Pros of break even analysis
A
- Tool for management
Predicts break even output, margin of safety, estimates profits - Highlights importance of fixed costs. Lower fixed costs, lower break even output therefore higher margin of safety
7
Q
Cons
A
Based on predicted date not actual data
Many unrealistic assumptions- no waste, all units produced are sold
