breakeven

Question 1

what is the break even point

Answer 1

amount a business needs to sell in order to make neither a profit or loss

Question 2

how do you calculate breakeven

Answer 2

fixed costs / selling price - variable cost

Question 3

what are the uses of breakeven

Answer 3

shows the break even level of output
shows a profit or loss
shows the margin of safety - number of sales lost before the business actually makes a loss (actual sales - breakeven sales)
shows what would happen to output if price increased

Question 4

what are the limitations to break even

Answer 4

assumes all stock will be sold
if data is inaccurate conclusions could be wrong
Assumes revenue and costs are linear
if business sells multiple products not all will have the same variable costs
assumes variable cost increase constantly
does not take trends into consideration