Week 11 Flashcards

1
Q

Define Break-even analysis

A

Break Even Analysis in economics, business, and cost accounting refers to the point in which total cost and total revenue are equal. A break-even points analysis is used to determine the number of units or dollars of revenue needed to cover total costs (fixed and variable costs).

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2
Q

What are the limitations of break-even analysis

A
  • Analysis into fixed or variable may be simplistic
  • Even if such analysis is possible, accurate data may not be available
  • Fixed cost estimate may not be constant/accurate for all volumes
  • Variable costs may not be linear
  • Selling price may vary for different customers - Only suitable for single / non-varied product
  • Assumes sales volume is only influenced on a total cost
  • Assumes efficiency (and thus cost) does not vary
  • Assumes sale volume = production volume
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3
Q

Draw and label a break-even analysis graph

A
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