Break Even

Question 1

What is Break Even?

Answer 1

The level of output at which the business is making neither a profit nor a loss.
Or basically to get the same amount of money back from what you have spent to make the product.

Question 2

Equation for Break Even

And the Additional Equation

Answer 2

Fixed Cost ÷ Contribution Cost = Break Even

Selling Price - Variable Cost = Contribution Cost

Question 3

Contribution Per Unit

Answer 3

The amount of money each unit sold contributes towards fixed costs and then once break-even has been achieved then to contributes to profit.

Question 4

Equation for Selling Price

Answer 4

Selling Price = VC - Units Sold = Answer
TC + Answer = Revenue Per Unit
Revenue Per Unit ÷ Unit Sold = Selling Price

Question 5

On a Break Even chart what would Fixed Cost look like?

Explain how it would look

Answer 5

l
l
l
l\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Fixed Cost
l
l\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
It would be a straight line going across the graph. It would be straight because it is a fixed cost and doesn't change.

Question 6

On a Break Even chart what would Total Revenue look like?

Explain how it would look

Answer 6

l          / Total Revenue
l        / 
l      /    (This would start from zero and go up)
l\_\_/\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Fixed Cost
l  /
l/\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Question 7

On a Break Even chart what would Total Cost look like?

Explain how it would look

Answer 7

l / Total Cost
l / /Total Revenue
l / / (This would start from where fixed cost starts)
l/_/____________________________Fixed Cost
l /
l/______________________________

Question 8

Advantages + Disadvantages of Break Even

3 each

Answer 8

Advantages:
-Measure profit and loses at different levels of sales.
-Analyses the relationship between FC + VC
-Predicts the effect of changes in sales prices.
Disadvantages:
-Assumes that sales prices are constant at all levels of out put.
-Break Even charts may be time consuming.
-It can only be applied to a single product.