Break Even

Question 1

Break Even

Answer 1

A point in a business venture where the profits/total sales are equal to the costs.

Question 2

What equation is used to calculate Break Even in Units?

Answer 2

Fixed Costs ➗ (sales price per unit - variable costs per unit)

The price per unit minus the variable costs per unit is the definition of the Contribution Margin Per Unit.

Question 3

What equation is used to calculate Amount of Revenue/Sales needed to Break Even?

Answer 3

Sales price per unit X Break Even in units

This will give the total amount of sales in £ needed to achieve Break Even.

Question 4

What is equation is used to calculate the Amount of Sales needed for Chosen Profitability?

Answer 4

(Desired profit in £ ➗ Contribution Margin) + Break Even in Units

This will give the total amount of unit sales needed to achieve a certain level of profitability.

Question 5

What is the Margin of Safety, and the equation for this?

Answer 5

The difference between the number of units required to meet profit levels, and the required units needed to cover expenses (Break Even). The amount of sales the company can afford to lose but still cover expenditure.

(Expected sales - Break Even sales) ➗ Expected sales = X%

(Higher the percentage the better)