Breakeven Flashcards
Total Revenue
The total amount of money coming In from sales. Total Revenue = Selling price x Quantity sold
Total Sales
The amount of Sales made in a set time period e.g one year. It can be expressed as a value or volume
Selling price per Unit
Average amount a customer pays for the product
Sales in volume
Sales expressed as a quantity
Variable Costs
Costs that change with different levels of output
Fixed Costs
Costs that do not move with levels of output. They remain the same.
Total Costs
Variable Costs + Fixed Costs
Break-Even Quantity
Fixed Costs/Selling price - Variable cost per unit
Contribution Per Unit
Selling Price - Variable cost per unit and Total contribution = Sales Revenue - Total Variable costs
Break Even Chart
Shows the point In which the Total Revenue and Total Costs cross. That is the break-even Point
Break-Even Point
Advantages
Can help identify if the costs are to high which allows a business to take appropriate action to reduce them
Informs decisions on the right price to charge for the good of the service
An easy way too calculate profit or loss at a given level or output
Break-Even Point
Disadvantages
Does not account for variations in costs or selling price
Forecast sales may not be achieved and therefore the break even point may not be reached
Targets may be set too high and cause unnecessary anxiety for the owner of the business.
Cash flow Inflows
Money coming into the business from various sources, Cash sales, loans, capital and bank interest received
Cash flow Outflows
Money going out of the business from various sources, Cash Purchases, Credit Purchases, VAT and bank interest paid.
Opening balance
The amount of cash available in a business at the start of the month
Closing balance
The amount of cash available at the end of the month.
