Break Even And Business Costs

Question 1

Fixed costs

Answer 1

Costs which do not change with output

Question 2

Variable costs

Answer 2

Costs that do change with output

Question 3

Revenue

Answer 3

Total value of sales made by a business in a given time period

Question 4

Break even point

Answer 4

The level of output where the total revenue is equal to total cost

Question 5

Contribution

Answer 5

The amount of revenue remaining after the variable costs have been paid

Question 6

Margin of safety

Answer 6

The difference in terms of unit produced between the current level of production and the break even level of production

Question 7

Limitations of break even charts

Answer 7

1) assumption that costs and revenues are represented by straight lines is unrealistic
2) not all costs can be conveniently classified into fixed and variable costs
3) It is unlikely that fixed costs remain unchanged at different levels of output UpTo maximum capacity

Question 8

Economies of scale

Answer 8

Purchasing economies
-bulk buying discounts
Marketing economies
-advertising
Financial economies
-lower interest rates
Managerial economies
-specialists in all departments
Technical economies
-latest equipment

Question 9

Diseconomies of scale

Answer 9

Poor communication
Employees are not committed to the business
Slow decision making