break even

Question 1

What does breaking even mean?

Answer 1

when you are not making a profit nor a loss

Question 2

What is the equation for breaking even?

Answer 2

BE= fixed costs/(selling price - variable cost)

Question 3

What is margin of safety?

Answer 3

The difference between what the firm actually produces and the break even level.

Question 4

Which two lines have to cross to form the break even point

Answer 4

Revenue and total cost

Question 5

If you increase the price of the products will your break even point get higher or lower

Answer 5

lower

Question 6

If the rent goes up will the break even point get higher or lower

Answer 6

higher

Question 7

Give some ideas about how you can reduce the break even point

Answer 7

find a cheaper supplier, increase the prices, pay lower wages

Question 8

What are the risks of increasing the selling price

Answer 8

People might shop elsewhere

Question 9

Explain what margin of safety means

Answer 9

The amount by which sales would have to fall before they reach the break even point

Question 10

What are the benefits of doing a break even chart

Answer 10

Costs are researched, it is a model, you can ask ‘what if’ questions, the owner knows how many items to sell in order to make a profit.

Question 11

What are the risks of not doing a break even chart

Answer 11

The business might make a loss for a long time without taking any action. It does not take into account what competitors are doing, the stock might cost too much and be sold at the wrong price.