Break Even

Question 1

What is break even

Answer 1

When a business makes no profit or loss

Question 2

What does break even mean for a business

Answer 2

Break even shows how many items a business has to sell to the point where costs and revenue will be equal

Question 3

Give a pro and con of break even

Answer 3

If sale past break even is profit

Every sale under it is loss

Question 4

Give a pro and con of break even

Answer 4

If sale past break even is profit

Every sale under it is loss

Question 5

What is the formula for break even

Answer 5

BREAK EVEN= FIXED COSTS/ SELLING PRICE- VARIABLE COSTS

Question 6

Example of break even

Answer 6

A shoe shop has the following costs:

Fixed costs= £30,000

Variable costs= £12 ( per pair of shoes)

Selling price= £40 (average)

Calculate the break even point for the shoe shop.

Break even point= £30,000/ £40 -£12

=1071.4
1072 pairs of shoes

Question 7

What is margin of safety

Answer 7

The difference between a businesses actual sales and break even sales

Question 8

What does margin Of safety do for the business

Answer 8

Shows how much sales can drop before the business suffers a loss

Question 9

Give a pro and con for margin of safety

Answer 9

If margin of safety is high then business is performing well

If the margin of safety is low then the business could face risk

Question 10

Example of Margin of safety

Answer 10

The shoe shop had a break even of 1072

If the shoe shop is currently selling 2000 pairs of shoes then the margin of safety would be 928.

2000- 1072= 928

Actual sales- break even

Question 11

Formula for margin of safety

Answer 11

ACTUAL SALES- BREAK EVEN