Break Even Analysis Flashcards

1
Q

What is to break even?

A

When you break even it means the business has not made a profit OR a loss

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2
Q

Formula for total revenue

A

Price per Unit X Number of units sold

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3
Q

Formula for Margin of safety

A

Actual sales - Break-even output

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4
Q

Formula for break-even point

A

BEP = Fixed costs
————–
Selling price - Variable cost per unit

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5
Q

Formula for total profit

A

Total revenue - Total costs

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6
Q

What is a business doing when it sells output beyond the break even point

A

Making a profit

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7
Q

On a break even chart, what line does the total revenue line meet at the break even point

A

The Total cost line

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8
Q

On a break even chart, what is the total cost above the break even point?

A

Less than the total revenue

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9
Q

What does the break even analysis NOT assume?

A

External environment is unstable

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10
Q

When does the break even point change?

A

When costs change

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11
Q

When does the break even point fall?

A

When costs go down

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12
Q

What is Contribution?

A

The price of an item Less the variable cost per item

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13
Q

List 3 advantages of break even analysis

A
  1. Quick and simple
  2. Easy to understand
  3. Helps spot potential problems
  4. Can assist when applying for a loan
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14
Q

List 3 DISADVANTAGES of break even analysis

A
  1. It is only a forecast
  2. Assumes that all products are sold
  3. Costs may change
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15
Q

What do you need to include in a break even analysis graph?

A

Total fixed costs (TFC), Total revenue (TR), Total costs (TC)

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16
Q

Formula for Total costs

A

Fixed costs + Variable costs

17
Q

Break even point

A

Point where total costs are the same as total revenue

18
Q

Break even output

A

Level of output a business needs to produce where total costs are the same as total revenue

19
Q

What is on the Y axis of a break even chart?

A

Profit, revenue, cost

20
Q

What is on the X axis of a break even chart?

A

Amount of product produced