Unit 5-Break Even Flashcards
1
Q
Breakeven
A
The point at which a business is not making a profit or loss
2
Q
Contribution per unit
A
Selling price-variable cost
Money left to contribute to fixed costs
3
Q
Total contribution
A
Total revenue-TVC
4
Q
BREAK EVEN FORMULA
A
Fixed cost/Contribution per unit
5
Q
Margin of safety 2 formulas
A
Actual output-Breakeven output
Profit/Contribution per unit
6
Q
What affects break even point (3)
A
Fixed costs
Variable costs
Selling price
7
Q
Strengths of BE (6)
A
Shows min sales needed +profit/loss Identify where costs are too high Sets a target Help secure finance Quick Influence decisions on new products launched-too high volume=not launch
8
Q
Weaknesses of BE (3)
A
Main:Based on static costs/revenues, even fixed costs vary in reality esp in long run and Ignores changes in variable costs e.g dis/economies of scale
Does not ensure sales will materialise
Hard when multiple products sold
