Breakeven analysis and limiting factor analysis (10)

Question 1

What’s the formula for the breakeven point (BEP)?

Answer 1

BEP = total fixed costs/contribution per unit

and the breakeven point is where profit = 0

Question 2

State the formula for the contribution ratio

Answer 2

Contribution ratio = total contribution/total revenue

Question 3

State the formula for the breakeven point in terms of sales revenue

Answer 3

Breakeven point in terms of sales revenue = fixed costs/contribution ratio

Question 4

State the formula for margin of safety

Answer 4

Margin of safety = (budgeted output - breakeven output)/ budgeted output x 100

or

margin of safety - budgeted output - breakeven output

Question 5

State the formula for profit targets

Answer 5

Sales volume for target profit = (fixed costs + target profit)/ contribution per unit

Question 6

Define a limiting factor

Answer 6

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