Break-even analysis

Question 1

variable costs

Answer 1

costs that change with the level of output e.g. stock

Question 2

fixed costs

Answer 2

costs that stay the same

Question 3

total costs

Answer 3

= fixed costs + variable costs

Question 4

revenue

Answer 4

= quantity sold x price per unit

Question 5

profit

Answer 5

= revenue - total costs

Question 6

break-even

Answer 6

= fixed costs / (selling price- variable costs)

Question 7

contribution per unit

Answer 7

= selling price - variable costs

Question 8

margin of safety

Answer 8

how much the actual output is above the break-even output, actual output level - break-even

Question 9

benefits of break-even

Answer 9

shows how many items must be sold to break-even, identifies fixed and variable costs, can calculate profit or loss at different levels of output

Question 10

limitations of break-even

Answer 10

does not account for variations in costs or selling price, target may not be reached, can cause stress

Question 11

how can fixed costs change?

Answer 11

Landlord puts rent up, interest rates change, management want pay increase

Question 12

how can variable costs change?

Answer 12

raw materials change in price, minimum wage is increased, utility companies change their price