Break Even Analysis Flashcards
Name 3 strengths of break even analysis
1) shows how long it will take for the business to be profitable
2) helps entrepreneur understand the level of risk involved with a start up
3) give quick estimates
Name 3 limitations of break even analysis
1) it assumes all stock is sold
2) ignores consumer demands
3) can be time consuming to make
What is break even
The point where a business I making neither a gain or loss
Examples of fixed costs
Rent
Taxes
Insurance
Wages
Salaries
Examples of variable costs
Raw materials
Productions supplies
Packaging
How to calculate the break even point?
Total fixed costs/ contribution
How to calculate contribution?
Item price - variable costs per unit
What is break even point measured in?
UNITS
Who may calculate BEPs?
Entrepreneurs
Investors
Businesses
Government agencies
Who may calculate BEPs?
Entrepreneurs
Investors
Businesses
Government agencies
Why does it matter??
Helps with :
Pricing
Decision making
Cost reduction
