Break Even

Question 1

Margin of Safety Formula

Answer 1

Actual Quantity Produced - BEQ

Question 2

BEQ Formula

Answer 2

BEQ = TFC / P - AVC

BEQ = TFC / Contribution Per Unit

Question 3

BE, BEC, BEQ, BEP, BEA

Answer 3

BE: Where revenue equals costs

BEC: Graph that illustrates the value of costs and revenues against volume of output

BEQ: The number items to be sold in order to break even

BEP: The spot on the BEC where the total costs and revenues intersect

BEA: A tool that is used to measure determine level of sales

Question 4

Target Profit Output Formula

Answer 4

(Fixed costs + target profit) / contribution per unit

Question 5

Contribution Formulas

Answer 5

Contribution Per Unit = Unit price - Unit variable cost

Total Contribution = Total revenue - Total cost

Total Contribution = Contribution Per Unit * Quantity

Question 6

Profit Loss Formula

Answer 6

Total Contribution - TFC

TR - TC

Question 7

Pros and Cons of Break Even

Answer 7

Relatively simple, quick, and assists decision making and planning

Reality is not linear, not suitable for rapidly changing business, static and simplistic