Break even

Question 1

What is the formula for revenue?

Answer 1

revenue =price*quantity sold

Question 2

why will revenue be the lowest when the business is starting up?

Answer 2

-There are not many sales due to a lack of reputation
-they cant charge a high price yet- penetration pricing

Question 3

How can firms increase revenue?

Answer 3

-advertising
-increased PR
-increase or decrease selling price depending on elasticity

Question 4

why is profit important?

Answer 4

-so you can pay yourself as an owner
-so that you can reinvest or have retained profit
-so you can pay shareholders

Question 5

what are the different types of costs?

Answer 5

-fixed costs
-variable costs
-total costs

Question 6

what is a break even analysis?

Answer 6

-This compares a firms revenue with its costs to identify the minimum number of sales needed to make a profit

Question 7

what is the definition of a break even output?

Answer 7

-This is the number of units at which a firm ‘breaks even’/ where total revenue is just enough to cover costs

Question 8

what is the calculation for break even quantity?

Answer 8

Break even quantity =fixed costs / contribution per unit

Question 9

what is the definition for contribution per unit?

Answer 9

Contribution per unit is how much each unit goes towards the payment for fixed costs.

Question 10

what is the formula for contribution per unit?

Answer 10

contribution per unit= selling price - variable cost

Question 10

What are the advantages of break even analysis?

Answer 10

-it predicts the effects of changes of sales prices
-it analyses the relationship b
-between fixed and variable cost
-it shows whether it is too risky to sell the product
-shows the amount of revenue he business will make at each output
-used to support a bank loan
-to assess the impact of a change in cost

Question 10

what are the disadvantages of break even analysis?

Answer 10

-it assumes production and sales are the same
-it is time consuming
-businesses can be unrealistic in their calculations
-variable costs change regularly
-it is simplification of the real world- businesses do not see all their products at one price- using an average is not accurate
-costs do not rise steady in reality

Question 11

what are the stages for drawing a break even chart?

Answer 11

1. scale the axis
   2.draw fixed cost line
   3.draw the total cost line
   4.draw the revenue
   5.lable break even point
   6.show the level of profit / loss made at a certain point
2. calculate the margin of safety

Question 11

what is the equation for total contribution?

Answer 11

total contribution= contribution per unit* quantityk