Edexcel- Break even analysis 2.2 Flashcards
Break even point
The point at which a business makes no losses or profits.
Break even point formula
Fixed costs/ Contribution
Margin of safety
Difference between level of output and break even level of output.
Margin of safety formula
Actual level of output- Break even level of output
Break even chart
A visual representation of the break even point
What do the lines on a break even chart identify?
Total costs
Revenue
Fixed costs
Limitations of break even analysis
Assumes all output is sold
Accuracy of break even analysis is reliant on quality of data.
Break even charts cannot be easily amended.
Contribution formula
Selling price per unit- Variable cost per unit
Variable cost per unit
Total variable cost/quantity
What can a break even chart also be used to identify?
Break even level of output
Profit and losses
Margin of safety
Break even level of output
Where the BEP is on the X axis.
Profit
Between sales revenue and total costs
Margin of safety
Break even level of output- profit
X axis
output or units
Y axis
Displays costs and sales revenue
