Break Even Analysis

Question 1

What are fixed costs + examples

Answer 1

Costs stay the same no matter the level of output
have to be payed on a weekly or monthly basis
- rent
- insurance
- salaries

Question 2

What is variable costs per unit + examples

Answer 2

costs that change depending on the level of output

• raw materials
• wages
• delivery costs

Question 3

What is the equation for break even

Answer 3

Fixed costs / contribution per unit

(Selling price - variable costs p/unit)

Question 4

In break even chart which line is fc

Answer 4

The stationary line across (always the same start as total costs)

Question 5

What is margin of safety

Answer 5

The difference between breakeven and the amount after

E.g. 2000 & 3000

Question 6

3 strengths of break even analysis

Answer 6

• helps a business see how many units need to be sold if they are launching new products
• helps set targets
• Assess the impact of changes in price

Question 7

Give 2 weaknesses of break even analysis

Answer 7

• depends on the experience of entrepreneurs

- doesn’t take unforeseen circumstances into account