Break-Even (Quick Revision)

Question 1

Define: Break-Even

Answer 1

Break-even is the minimum level of output at which total revenue equals total costs.

Question 2

How would an increase in fixed costs affect the break-even output? Explain.

Answer 2

Break-even output would increase because more units would need to be sold to cover costs.

Question 3

State two fixed costs that a firm might consider when choosing a location.

Answer 3

• Rent and rates

* Council taxes

Question 4

State two reasons why a girl might prefer a location with a low break-even output.

Answer 4

• May mean less risk

* If sales are low, may still cover costs

Question 5

What variable costs might be considered at different locations?

Answer 5

Cost of labour and materials

Question 6

What is the Examiner’s note for Break-Even?

Answer 6

Break-even is one quantitative decision-making technique that may be used to decide on an appropriate location; another is investment appraisal.

Question 7

What is the Evaluation point for Break-Even?

Answer 7

The value of break-even analysis in location decisions depends on how accurate the estimates of the data are and the relative importance of quantitative factors compared to qualitative ones.