Break-even

Question 1

Break-even Definition

Answer 1

Enough revenue to cover Total Costs

Question 2

Break-even output Definition

Answer 2

output needed so Total Revenue + Total Costs are the same

Question 3

Contribution

Answer 3

Money left over from variable costs subtracted from revenue. The money contributs towards fixed costs and profit

Question 4

Margin of Safety

Answer 4

ranged of output between the break-even level and the current level of output, which a profit is made.

Question 5

Contribution Per Unit Formula

Answer 5

selling price - variable cost

Question 6

Total contribution formula

Answer 6

total revenue - total variable costs

Question 7

Break-even formula

Answer 7

fixed costs / cpu

Question 8

Margin of safety formula

Answer 8

sales - breakeven

Question 9

Benefits of break-even

Answer 9

1) they are found in business plans, which banks look for in the loan process
2) vital in gaining finance for a start up business
3) helps answer ‘what if’ questions

Question 10

Limitations of Break-even

Answer 10

1) Assumes all output is sold so output equals sales and no stocks are held
2) Drawn for a given set of conditions, cannot cope with sudden increase