Break Even

Question 1

What is break-even?

Answer 1

This is the number of products or units needed to be sold to match revenue and costs.

Question 2

How do you calculate breakeven?

Answer 2

Break Even = Fixed Costs / Contribution per unit

Question 3

How do you calculate Contribution per unit?

Answer 3

Selling Price - Variable Cost per unit

Question 4

Benefit of Break Even? (4)

Answer 4

1. Calculating break even will predict the amount of units they need to sell
2. This can be compared with sales forecasts to see if they are making a loss
3. This can allow them to reduce the break even in order to increase contribution per unit
4. Preventing loss

Question 5

1. Drawback of break even? (6)

Answer 5

1. Break even remains constant like increasing variable costs
2. This will reduce contribution per unit
3. Break even will ignore this making decisions inaccurate
4. Inappropriate decisions made by business
5. Such as reducing selling price
6. Operating Loss