Break even analysis Flashcards
What are fixed costs
Costs that stay the same regardless of output e.g rent rates salaries interest payments
What are variable costs
Costs that change in relation to output e.g raw materials
As output increases variable costs increase
What are semi variable costs
Costs that are partially fixed/partially variable
How is total revenue shown on a graph
Starts at 0 and slopes upwards
How is fixed costs shown on a graph
Straight horizontal line
How are variable costs shown on a graph
Starts at 0 and slopes upwards
how is total costs shown on graph
Starts at the fixed cost point and slopes upwards
What is break even
Level of output where business is making neither a profit or loss
Total cost at this point is equal to total revenue
What is contribution per unit
Amount of money each unit sold contributes towards fixed costs and once break even has been achieved then contributes to profit
What is break even analysis
Numerical technique that identifies number of units necessary to reach break even
What is margin of safety
Difference between actual number of units produced and the number required to break even
Greater difference = greater profitability potential
What are break even charts used for
Read the loss or profit of a business at given levels of output
Used for planning monitoring controlling and target setting
