CHAPTER 16- MARKETING 2 -BEP

Question 1

what is the breakeven analysis

Answer 1

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

Question 2

what is the break even point give 4 points

Answer 2

• 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

Question 3

a business’ costs can be classified as either….

Answer 3

fixed or variable

Question 4

what are fixed costs and give an example

Answer 4

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

Question 5

what are variable costs and give an example

Answer 5

• 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

Question 6

formula for BEP in units

Answer 6

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

Question 7

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

Answer 7

the contribution per unit

Question 8

formula for BEP in euro

Answer 8

the BEP in units x selling price

Question 9

formula for net profit

Answer 9

Total revenue - Total costs

Question 10

what is the total revenue?

Answer 10

the money the business makes from selling its products

Question 11

formula for TR

Answer 11

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

Question 12

what are the total costs?

Answer 12

all the money the business spends making the product

Question 13

formula for total costs

Answer 13

variable costs + fixed costs

Question 14

formula for variable costs

Answer 14

units x variable cost per unit

Question 15

what is another term for profit at full capacity

Answer 15

profit at forecast sales

Question 16

what is another term for profit at forecast sales

Answer 16

profit at full capacity

Question 17

what is profit at full capacity

Answer 17

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

Question 18

another term used for expecting

Answer 18

forecasting

Question 19

what is the margin of safety (2)?

Answer 19

• 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

Question 20

formula for MOS

Answer 20

forecast sales in units - BEP in units

Question 21

full capacity means…

Answer 21

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

Question 22

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

Answer 22

brackets

Question 23

why do business make breakeven charts?

Answer 23

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

Question 24

horizontal axis

Answer 24

output in units

Question 25

vertical axis

Answer 25

revenue and costs in euro

Question 26

name the 3 lines on a breakeven chart

Answer 26

- fc - tr - tc

Question 27

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

Answer 27

profit

Question 28

to figure out what number to go up in just;

Answer 28

find the highest number that divides into each number

Question 29

what title do you put for a breakeven chart?

Answer 29

breakeven chart for.....

Question 30

SHORTCUT say the 4 strengths of breakeven analysis

Answer 30

-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

Question 31

say the 4 strengths of breakeven analysis

Answer 31

- 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

Question 32

SHORT say the 4 limitations of breakeven analysis

Answer 32

- 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

Question 33

say the 4 limitations of breakeven analysis

Answer 33

-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

Question 34

2016 section 3 Q6 page 15

Answer 34

notes

Question 35

2019 section 1 Q10 (ii) page 37

Answer 35

notes

Question 36

2017 section 1 Q 8 (b)

Answer 36

notes

Question 37

2005 section 3 Q7

Answer 37

notes

Question 38

2013 section 1 (ii) page 19

Answer 38

notes

Question 39

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

Answer 39

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

Question 40

do a breakeven chart question for practise !!!

Answer 40

notes