Break-Even Analysis

Question 1

Profitability wisdom

Answer 1

Profitability has nothing to do with ROI. Investment is a fixed asset — one time deal. Profitability is based on time.

It is the ability of a firm to earn income (earning power). A business that is less profitable its competitors may, also, face difficult to obtain debt and financing by the owners, and that effects its liquidity position and ability to grow. In addition, the profitability used as a test for management’s operating effectiveness.

Question 2

Break Even Analysis (BEA)

Answer 2

a useful tool to study the relation between fixed costs and variable costs and revenue.

Question 3

Break Even Point (BEP)

Answer 3

indicates at what moment an investment will start generating a positive return.

Question 4

Fixed costs

Answer 4

also called overhead. These costs are always occur after the decision to start an economic activity and they relate directly to the level of production, but not the quantity of production.

Fixed costs include (but are not limited to) depreciation of materials, interest costs, taxes and general overhead costs (labour costs, energy costs, depreciation costs).

Question 5

Variable costs

Answer 5

costs that change in direct relation to the volume of production. This concerns for instance selling costs, production costs, fuel and other costs that are directly related to the production of goods or an investment in capital.

Question 6

Break-Even Point Formula

Answer 6