Breakeven analysis

Question 1

What does the Horizontal line (straight going sideways) represent on breakeven graph?

Answer 1

• Horizontal line represents ‘fixed’ costs (they dont change as activity levels change)

Question 2

What does the staggered line on breakeven chart represent?

Answer 2

The relationship between contribution and sales

Question 3

Where lines intersect on Breakeven chart what does this show?

Answer 3

-Breakeven point (allows us to determine our margin of safety)

Question 4

What are the disadvantages of break even chart analysis?

Answer 4

• breakeven point usually unrealistic or inaccurate (unless sales match ratio)

-Analysis is based on budgeted figures so inaccurate

Question 5

What is the main advantage of breakeven analysis?

Answer 5

Tells us our breakeven position (allows to determine our margin of safety)

Question 6

What are the benefits for using ABC for manufacturing?

Answer 6

• More accurate
  -Allows us to group costs (Better decision making)
  -Easier for planning and control