Breakeven Flashcards
What is break-even
the level of output at which total sales revenue is equal to total costs of production
What is the breakeven point
where the total revenue and total costs line cross is where they are equal and profits is therefore zero
the point where total revenue equals total costs
Total variable costs calculation
variable costs by unit x number of units
Sales revenue calculation
Selling price x quantity sold
X axis on a breakeven chart
quantity/ output
What is margin of safety
this is the difference between the break-even point and the current level of output
Calculation of margin of safety
current level of output - breakeven
When is margin of safety used in break even analysis
used to indicate the amount of sales that are above the break- even point
How to calculate contribution per unit
selling price- variable costs per unit
Breakeven point calculation
selling price- variable costs
Question-
if fixed costs = £2000, variabkle costs + 8 per unit, selling price =£10
what would break-even be?
price per unit- variable costs per unit
£!0-£8 = £2
fixed costs divided by contribution
£2000 divided by 2 = 1000
1000 products will need to be sold in order to break even and cover all costs
How would we calculate the revenue at break even point?
break even point x selling price
What is total contribution
the difference between total revenue and total variable costs
if total contribution exceeds fixed costs the business is making a profit
calculation of total contribution
contribution per unit x number of units sold
or
sales rev- total variable costs
How do we illustrate changes to price and costs on a break-even chart (6 possible changes
-an increase in the selling price
-a decrease in selling price
-an increase in the variable cost per unit
-a decrease in the variable cost per unit
-an increase in fixed costs
-a decrease in fixed costs
If selling price increased what would happen to the line
If sales revenue decreased what would happen to the line
if variable costs increased what would happen to the line?
If variable costs decreased what would happen to the line
If fixed costs increased what would happen to the line
If fixed costs decrease what would happen to the line
