Break Even Analysis Flashcards
What is to break even?
When you break even it means the business has not made a profit OR a loss
Formula for total revenue
Price per Unit X Number of units sold
Formula for Margin of safety
Actual sales - Break-even output
Formula for break-even point
BEP = Fixed costs
————–
Selling price - Variable cost per unit
Formula for total profit
Total revenue - Total costs
What is a business doing when it sells output beyond the break even point
Making a profit
On a break even chart, what line does the total revenue line meet at the break even point
The Total cost line
On a break even chart, what is the total cost above the break even point?
Less than the total revenue
What does the break even analysis NOT assume?
External environment is unstable
When does the break even point change?
When costs change
When does the break even point fall?
When costs go down
What is Contribution?
The price of an item Less the variable cost per item
List 3 advantages of break even analysis
- Quick and simple
- Easy to understand
- Helps spot potential problems
- Can assist when applying for a loan
List 3 DISADVANTAGES of break even analysis
- It is only a forecast
- Assumes that all products are sold
- Costs may change
What do you need to include in a break even analysis graph?
Total fixed costs (TFC), Total revenue (TR), Total costs (TC)
Formula for Total costs
Fixed costs + Variable costs
Break even point
Point where total costs are the same as total revenue
Break even output
Level of output a business needs to produce where total costs are the same as total revenue
What is on the Y axis of a break even chart?
Profit, revenue, cost
What is on the X axis of a break even chart?
Amount of product produced
