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business > CHAPTER 16- MARKETING 2 -BEP > Flashcards

CHAPTER 16- MARKETING 2 -BEP Flashcards

1
Q

what is the breakeven analysis

A

the minimum price a business must charge for its price to be equal to the total cost of making that product

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2
Q

what is the break even point give 4 points

A
  • the number of products a business must sell just to cover its costs
  • it makes neither a profit nor a loss
  • the income (revenue) the business makes from selling its products is exactly equal to the total cost of making them
  • in business we say it is when TOTAL REVENUE = TOTAL COSTS
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3
Q

a business’ costs can be classified as either….

A

fixed or variable

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4
Q

what are fixed costs and give an example

A

a fixed cost never changes no matter how many products the business sells

  • factory rent is an example of a fixed cost
  • even if the bus sells nothing it must still pay the rent (fixed cost) in full
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5
Q

what are variable costs and give an example

A
  • a variable cost increases or decreases as the number of products the bus makes and sells increases or decreases
  • ingredients is an example of a variable cost
  • the more products the business sells the more ingredients the business needs thus increasing the cost
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6
Q

formula for BEP in units

A

(fixed costs) divided by (selling price - variable cost)

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7
Q

what is the difference between the selling price and the variable cost known as?

A

the contribution per unit

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8
Q

formula for BEP in euro

A

the BEP in units x selling price

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9
Q

formula for net profit

A

Total revenue - Total costs

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10
Q

what is the total revenue?

A

the money the business makes from selling its products

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11
Q

formula for TR

A

number of products she is going to sell; x selling price per unit

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12
Q

what are the total costs?

A

all the money the business spends making the product

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13
Q

formula for total costs

A

variable costs + fixed costs

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14
Q

formula for variable costs

A

units x variable cost per unit

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15
Q

what is another term for profit at full capacity

A

profit at forecast sales

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16
Q

what is another term for profit at forecast sales

A

profit at full capacity

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17
Q

what is profit at full capacity

A

the profit the business expects to make if it sells all the products it is expecting to sell

18
Q

another term used for expecting

A

forecasting

19
Q

what is the margin of safety (2)?

A
  • the margin of safety is the difference between a business’ forecast sales in units and its BEP in units
  • it shows the business by how much its sales can drop before it starts making a loss
20
Q

formula for MOS

A

forecast sales in units - BEP in units

21
Q

full capacity means…

A

selling the full amount that she is expecting to sell ie.forecast sales

22
Q

in bus instead of using the minus sign - we use…

A

brackets

23
Q

why do business make breakeven charts?

A

so they can read the profit/loss figure straight from the chart for any given level of sales

24
Q

horizontal axis

A

output in units

25
Q

vertical axis

A

revenue and costs in euro

26
Q

name the 3 lines on a breakeven chart

A
  • fc
  • tr
  • tc
27
Q

when the total revenue line is higher than the total cost line the business is making ;
a profit or a loss???

A

profit

28
Q

to figure out what number to go up in just;

A

find the highest number that divides into each number

29
Q

what title do you put for a breakeven chart?

A

breakeven chart for…..

30
Q

SHORTCUT say the 4 strengths of breakeven analysis

A

-how long until profitability
-feasibility of business proposal
idea financially viable or not
-MOS calculation shows the business how over-optimistic sales forecast can
-importance of keeping fixed costs down

31
Q

say the 4 strengths of breakeven analysis

A
  • lets entrepreneur know how long it will take before her business start-up or new product reaches profitability ie what sales are needed to pass the breakeven point
  • helps the entrepreneur understand the feasibility of a business proposal and lets her know if her idea is financially viable or not
  • the MOS calculation shows how much a sales forecast can prove over-optimistic before losses are incurred
  • breakeven analysis illustrates the importance of a business start-up keeping their fixed costs down to a minimum because higher fixed costs mean higher BEP
32
Q

SHORT say the 4 limitations of breakeven analysis

A
  • assumes selling price of product never changes
  • most businesses sell more than 1 product
  • variable costs don’t always stay the same
  • assumes sales and output are the same
33
Q

say the 4 limitations of breakeven analysis

A

-breakeven analysis assumes the selling price never changes
but this is incorrect because if a customer puts in a very large order he will expect a quantity discount of the normal selling price
-most business sell more than 1 product so breakeven for the business becomes a lot more complicated to work out
-breakeven assumes that sales and outputs (the no. of products the business makes) is the same ie. the business sells everything it makes
this is unrealistic because it doesn’t take into account the build up of stocks.
-variable costs don’t always stay the same
for example as output rises the business may benefit from a quantity discount allowing it to buy ingredients at lower prices therefore reducing the variable cost per unit

34
Q

2016 section 3 Q6 page 15

A

notes

35
Q

2019 section 1 Q10 (ii) page 37

A

notes

36
Q

2017 section 1 Q 8 (b)

A

notes

37
Q

2005 section 3 Q7

A

notes

38
Q

2013 section 1 (ii) page 19

A

notes

39
Q

in breakeven analysis a distinction is made between variable costs and fixed costs
explain these terms give one example in each case

A

FIXED
-the cost never changes no matter how many products the business makes and sells
-factory rent is an example of a fixed cost
VARIABLE
-the cost increases or decreases as the number of products made and sold increases or decreases
-the cost of ingredients is an example of a variable cost

40
Q

do a breakeven chart question for practise !!!

A

notes

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