break even key terms

Question 1

what are fixed costs?

Answer 1

fixed costs are costs which remain the same regardless of units produced or sold eg rent and rates

Question 2

what are variable costs?

Answer 2

these costs change directly with production ie they will increase as units produced or sold increase eg materials and production wages

Question 3

what is contribution?

Answer 3

this is our selling price per unit - variable cost per unit or sales revenue - total variable costs. The contribution goes towards covering the fixed costs. Once the fixed costs are covered by the contribution then the business will start to make a profit

Question 4

what is the margin of safety?

Answer 4

This is our current production and sales units level- break even units. This is the extra units the business is producing and selling above and beyond the break even units. It can be shown in units and sales value

Question 5

what is break even?

Answer 5

break even is when we are not making a profit or loss. Our total revenue is equal to our total costs. If total revenue is greater than total costs a profit is made. If total revenue is less than total costs a loss is made.

Question 6

what is sales revenue

Answer 6

sales revenue refers to the units sold x the selling price

Question 7

what is the selling price per unit?

Answer 7

the selling price per unit is the amount charged to the customer for each unit.