Break Even Analysis Flashcards
1
Q
What is contribution?
A
The difference between the selling price and Variable cost it takes to produce the products
2
Q
How do you calculate total contribution?
A
Total revenue-total variable cost
3
Q
How do you calculate break even output?
A
Fixed costs DIVIDED By contribution per unit
4
Q
What’s the margin of safety?
A
Amount between actual output&break even
5
Q
What are the advantages of BEA
A
- easy
- quick
- helps to persuade banks to give loans
- influences key decisions
6
Q
Disadvantages of BEA?
A
- wrong data=wrong results
- can be complicated
- only shows how many u need sell not actually amount
- assumes variable costs goes up steadily but a business may get discounts if buying in bulk
7
Q
What is break even output?
A
The level of sales a business needs to cover it’s costs
