Unit 3 - Business Finance (Costs and breakeven)

Question 1

Revenue

Answer 1

Revenue is the money generated from the sale of products or services. It is the price per unit multiplied by quantity.

Question 2

Types of Costs - Fixed

Answer 2

Do not vary with the level of output.

Question 3

Types of Costs - Variable

Answer 3

Vary with the level of output.

Question 4

Types of costs - Semi-variable

Answer 4

Both fixed costs and variable costs.

Question 5

Total costs

Answer 5

Sum of all variable costs and fixed costs of production.

Question 6

Profit and loss

Answer 6

Profit or Loss is the difference between total revenue and total costs

Question 7

Breakeven

Answer 7

Breakeven is the level of output where total costs and total revenue are the same, the business will not make a profit or a loss.

breakeven = fixed costs/(Selling price - Variable cost per unit)

Question 8

Advantages of Breakeven

Answer 8

• Simple to conduct and understand
• Cheap and can be carried out quickly
• Shows expected profit and loss at a variety of levels
• Can be used to support a loan application
• Can adapt to changing circumstances
• Can give a rule-of-thumb guide to potential profit

Question 9

Disadvantages of Breakeven

Answer 9

• Pays little attention to change in the marketplace
• Costs and prices change regularly
• Doesn’t include discounts (economies of scale)

Question 10

Margin of safety

Answer 10

The margin of safety is the difference between the target or actual sales and the breakeven point.