Breakeven

Question 1

Define break even

Answer 1

A company reads even when total costs and total revenue as exactly the same
Neither a profit or loss is made

Question 2

Why break even

Answer 2

1. Can see what a business needs to do to operate properly
2. Businesses know how much they need to sell to cover their costs
3. If costs aren’t covered the make a loss
4. If revenue is greater than costs they make a profit
5. If costs and revenue are the same they will break even

Question 3

What is contribution

Answer 3

Profits made by individual products

Question 4

How to you measure contribution

Answer 4

total sales - total variable costs

Question 5

How to measure contribution per unit

Answer 5

Selling price (pu) - variable costs (pu)

Question 6

Equation for total contribution

Answer 6

Contribution (pu) x number of units sold

Question 7

How do you measure profits

Answer 7

Contribution - fixed costs

Question 8

Equation for break even

Answer 8

Fixed costs / contribution per unit

Question 9

What are the positives of break even

Answer 9

1. Know what output is required before profitability
2. Management- better understanding of risks
3. Margin of safety calculation

Question 10

Limitations of break even

Answer 10

1. Unrealistic assumptions
2. Variables costs don’t always stay the same
3. Most businesses sell more than one product
4. Not really a decision making tool