break-even

Question 1

what is the break-even point

Answer 1

the amount a business must sell in order to make a profit or a loss

Question 2

how do you work out break even costs `

Answer 2

fixed costs / selling price - variable costs

Question 3

what are the uses of break even charts

Answer 3

shows level of break-even output
shows where the business is going to make a profit or a loss
margin of safety - number of sales that could be lost before business makes a loss (actual sales - break-even sales
what would happen if price increase

Question 4

what are the limitation of break-even

Answer 4

assumes all stock is sold
if data is inaccurate conclusions are wrong
assumes revenue and costs are linear
if business sells multiple products not all will have the same variable price