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).
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
3
Q
Draw and label a break-even analysis graph
A