Costs and break even analysis

Question 1

Define fixed costs

Answer 1

costs that don’t change with the level of output and have to be paid whether a business is making sales or not

Question 2

Define variable costs

Answer 2

costs that change with the level of output. When the level of output is 0 variable cost is 0 but when level of output is at max it is the number of customers multiplied by the average price cost on a break even chart.

Question 3

Define break even point

Answer 3

the level of sales where

total costs = total revenue

Question 4

Define break even chart

Answer 4

a graph used to show how costs and revenues of a business can change with sales. they show the level of sales the business must make in order to break even

Question 5

Define margin of safety

Answer 5

it’s the amount where sales exceed the break even point