Break-even

Question 1

What is the break-even point?

Answer 1

When a business is not making a profit or loss.

Question 2

What is the margin of safety?

Answer 2

The difference between the target or actual sales and the break-even point.

Question 3

What is the target sales?

Answer 3

The number of units a business aims to sell.

Question 4

If fixed costs increase…

Answer 4

• the break-even point will be higher which means the business will need to sell more units to break-even
• if the revenue stays the same, business will make less profit
• if costs are higher than the revenue, business won’t be able to break-even and will make a loss.

Question 5

If fixed costs decrease…

Answer 5

• break-even point will be lower
• need to sell fewer units to cover costs
• revenue stays the same = make larger profit

Question 6

If sales price increase…

Answer 6

• break-even point will be lower
• sell fewer units to cover its costs
• business will make a larger profit

Question 7

If sales price decrease…

Answer 7

• break-even point will be higher
• sell more and cover costs
• costs and total costs stay the same– business will make less profit
• low price could effect more customers to buy products– boost sales revenue.