key words - page 6

Question 1

Margin Of Safety

Answer 1

This is the amount by which a firm’s sales can fall before reaching break-even point.

Question 2

Contribution

Answer 2

This is the difference between the selling price of a product and the variable costs it takes to produce it. Contribution contributes towards fixed costs and profit.

Question 3

Unit Contribution

Answer 3

This is the contribution on the sale of one unit. Say for example, that Mr. Jones, a second hand car salesman, buys a Mini Cooper at an auction for £3,000 and sells it for £4,000 - in this case his contribution is £4,000 - £3,0000 = £1,000