break even

Question 1

Concept of Break-even

Answer 1

When the revenue a business earns from sales is equal to the cost of selling the output. (product/service)

Question 2

The quantity at which revenue is equal to costs is called the break-even output. This can be calculated by:

Answer 2

Using a table
Using a graph
Using a formula

Question 3

Margin of safety

Answer 3

When the amount of actual sales are greater than the level of sales needed to break-even.

Actual sales – Break-even sales

Question 4

Calculating using a formula

Answer 4

BE output = Total fixed costs
Contribution per unit

BE Output = Total fixed costs
Price – variable costs per unit

Question 5

Problems with Break-even

Answer 5

Problems include:
It’s only a forecast (prediction) so things can change in the future.
The business may not be able to sell at the price planned. New competition and income levels can impact this.
Costs can increase. (raw materials)