Section 3 - 3.3 break even analysis

Question 1

Break even analysis

Answer 1

Is management tool used to calculate the level of sales needed to cover all costs of production. Thereafter, for the sales generate a positive safety margin, and hence profit for the business

Question 2

Break even chart

Answer 2

Is the name given to the graph that shows a firms costs, revenues and profits (or loss) at various levels of outfit

Question 3

Break even point

Answer 3

Refers to the position on a break even shot with a total Cost line intersects the total revenue line
i.e. where TC=TR

Question 4

Breakeven quantity

Answer 4

Refers to the level of output that generates neither profit nor loss. It is shown on the X axis on a break even chart

Question 5

Contribution per unit/unit contribution

Answer 5

Is the difference between the selling price of a product and its variable cost of production i.e. P - AVC. The surplus goes towards paying fixed costs

Question 6

The margin of safety (MOS)

Answer 6

Is the difference between a firms level of demand and its breakeven quantity. A positive MOS means the firm can decrease output (sales volume) by that amount without making a loss. A negative MOS means the firm is making a loss

Question 7

Profit

Answer 7

Is the positive difference between a firms revenue and it’s cost. On a break even chart, profit is shown at all levels of output beyond the break even quantity

Question 8

Special decision order

Answer 8

Because what a customer places an order at a price that diffs from the normal price charged by the business

Question 9

Total contribution

Answer 9

Is the unit contribution multiplied by the quantity of sales. It is essentially a firms gross profit