ch 3: break-even Flashcards
is of vital importance in determining the practical application of cost functions.
Break-even analysis
It is a function of three factors, i.e., sales volume, cost and profit.
Break-even analysis
It aims at classifying the dynamic relationship existing between total cost and sale volume of a company.
Break-even analysis
Break-even analysis is also known as?
“cost-volume-profit analysis”
the operating condition that exists when a company’a sales reach a point equal to all expenses incurred in attaining that level of sales.
Break-even
is a financial tool which helps a company to determine the stage at which the company, or a new service or a product, will be profitable.
Break-even analysis
In other words, it is a financial calculation for determining the number of products or services a company should sell or provide to cover its costs (particularly fixed costs).
Break-even analysis
is a situation where an organisation is neither making money nor losing money, but all the costs have been covered.
Break-even analysis
s useful in studying the relation between the variable cost, fixed cost and revenue.
Break-even analysis
Generally, a company with low fixed costs will have a?
low break-even point of sale
In the diagram above, the line OA represents the?
variation of income at varying levels of production activity (“output”).
OB represents the?
total fixed costs in the business.
As output increases? meaning that?
variable costs are incurred, meaning that total costs (fixed + variable) also increase.
At low levels of output?
Costs are greater than Income.
At the point of intersection, P? hence?
costs are exactly equal to income, and hence neither profit nor loss is made
Components of Break-even Analysis
- Fixed Cost
- Variable Cost
- Contribution Margin
- Contribution Margin Ratio
*
are those business costs that are not directly related to the level of production or output.
Fixed costs
In other words, even if the business has a zero output or high output, the level of these will remain broadly the same.
fixed costs
In the long-term, these can alter, - perhaps as a result of investment in production capacity (e.g. adding a new factory unit) or through the growth in overheads required to support a larger, more complex business.
fixed costs
Rent and rates
(fixed or variable cost?)
fixed costs
Depreciation
(fixed or variable cost?)
fixed costs
Research and development
(fixed or variable cost?)
fixed costs
Marketing costs (non- revenue related)
(fixed or variable cost?)
fixed costs
Administration costs
(fixed or variable cost?)
fixed costs