Costs

Question 1

Fixed Costs

Answer 1

Remain the same, regardless of the output quantity

ie Salaries, mortgages

Question 2

Variable Costs

Answer 2

Change according to the output quantity

ie Wages, transport costs, cost of materials

Question 3

Average Selling Price calculation

Answer 3

Total revenue / Number of items sold

Question 4

Break Even

Answer 4

Neither a profit nor a loss is made, and total revenue = total costs

Question 5

Break Even Level of Output

Answer 5

Quantity required to be produced and sold to ensure the total revenue from output will cover the total costs

Question 6

Total Revenue calculation

Answer 6

Quantity x Selling Price

Question 7

Profit calculation

Answer 7

Total revenue - total costs

Question 8

3 ways a business can lower its’ break even point

Answer 8

Cutting fixed costs
Reducing variable costs
Increasing the selling price

Question 9

Advantages of break even analysis

Answer 9

See how many items you need to break even
Make decisions about prices
Informed planning- investment opportunities, ie loan applications

Question 10

Disadvantages of break even analysis

Answer 10

Costs are only fixed in the short term
Not useful for bespoke products- all cost a different amount to produce
Assumes all output is sold
Doesn’t take into account things like exchange rates changing