Breakeven analysis and limiting factor analysis

Question 1

what is break-even point? (BEP)

Answer 1

when profit=0

Question 1

formule for BEP in units

Answer 1

BEP in units = Total fixed costs/contribution per unit

Question 2

formula BEP in revenue

Answer 2

BEP (units) x selling price per unit

Question 3

Contribution (CS ratio)

Answer 3

CS Ratio= Total contribution/ Total revenue

Question 4

breakeven point in terms of sales revenue:

Answer 4

fixed costs/ contribution ratio

Question 5

margin of safety and formula:

Answer 5

amount that anticipated sales can fall below budget before a business can no longer make a profit

margin of safety = budgeted output - breakeven output

Question 6

margin safety as a % of budgeted sales

Answer 6

budgeted output - breakeven output / budgeted output x 100

Question 7

sales volume for a target profit:

Answer 7

fixed costs + target profit / contribution per unit

Question 8

sales revenue for a target profit:

Answer 8

fixed costs + target profit / CS ratio

Question 9

breakeven assumptions and limitations

Answer 9

• constant sales price
• constant variable costs per unit
• constant fixed costs
• production = sales
• costs classifies easily as fixed or variable
• applied to the single product or a constant mix
• charts time consuming
• ignore uncertainty of estimates

Question 10

what is a limiting factor?

Answer 10

a limiting factor is a factor which prevents a company from achieving the level of activity that it would like to achieve

Question 11

Key Factor Analysis (KFA) method

Answer 11

1. Calculate the contribution per unit for each product.
2. Calculate the contribution per limiting factor for each product: Contribution per unit/ limiting factor per unit
3. Rank the products in order of the contribution per unit of the limiting factor
4. Allocate resources using this ranking