unit 4 Flashcards
1
Q
total costs
A
fixed costs+variable costs
2
Q
total revenue
A
selling price x quantity sold
3
Q
average costs
A
total costs/ unit produced (output)
4
Q
breakeven level
A
FC/ SP-VC
5
Q
breakeven def
A
the quantity of goods/ sales that must be produced in order to cover costs. for total revenue to equal total costs
6
Q
margin of safety
A
the amount by which current sale exceed breakeven level
= current sales - BEP
7
Q
benefits of breakeven analysis
A
- managers can read off the graph how much profit/loss has been mad at any levels of output
- allows to see the margin safety, risk of loss
- allows the business to the impacts of lowering VC or increasing SP on the break-even level
8
Q
drawbacks of breakeven analysis
A
breakeven calculations may be inaccurate if the selling price changes over time
it assumes that fixed costs doesn’t change with output
