break even

Question 2

break even point formula

Answer 2

fixed costs /contribution per unit

Question 3

Break Even Point

Answer 3

a total revenue earned for a product is exactly equal to its total costs and where the business is making neither a profit nor a loss

Question 4

Identifying the break even point

Answer 4

allows a business to understand how many items it needs to produce and sell to cover all costs before it starts to make a profit

Question 5

margin of safety

Answer 5

amount demand can fall before firm starts making losses

Question 6

margin of safety formula

Answer 6

total sales - breakeven level of output

Question 7

break even chart

Answer 7

graph showing revenue + costs for a business at all levels of demand/output

Question 8

limitations of break even analysis

Answer 8

• assumes vc increase constantly, ignores benefits of bulk buying
• assumes firm sells all its output at a single price
• assumes that all output is sold

Question 9

horizontal axis

Answer 9

represents the output per time period for the business

Question 10

vertical axis

Answer 10

represents costs + sales in pounds

Question 11

break even output formula

Answer 11

fixed costs /
(selling price per unit - vc per unit)

Question 12

contribution per unit formula

Answer 12

selling price - vc per unit

Question 13

total contribution

Answer 13

contribution per unit x quantity sold

Question 14

profit

Answer 14

total contribution - FC

Question 15

strengths of break even analysis

Answer 15

• estimates the future level of output they need to produce and sell in order to meet given profit objectives
• asses the impacts of planned price changes upon profit and the level of output needed to break even
• take decisions about whether to produce their own products or to purchase from external sources