Break-Even, Profit, Loss etc.

Question 1

What is Sales revenue?

Answer 1

Income from selling goods & services over a period of time.

Question 2

What are Fixed costs?

Answer 2

Costs that stay the same no matter how much is sold.

+Eg. rent, salary

Question 3

What are Variable costs?

Answer 3

Changes depending on how much is sold eg. raw materials, packaging

Question 4

What is Total cost?

Answer 4

fixed costs & variable costs set over a period of time.

Question 5

What is Break even?

Answer 5

When neither a profit or loss is made

+ Total revenue = total cost

Question 6

What is the Break even point?

Answer 6

The number of items/ units needed to cover total cost

Question 7

What is a Break even chart?

Answer 7

A graph showing a company’s revenue and total costs at all possible level of output

Question 8

What is Profit?

Answer 8

Difference between total revenue and total cost.

+If the figure is negative the business is making a loss

Question 9

What is the Margin of safety?

Answer 9

Difference between what is actually sold and the break even sales point

Question 10

What is the equation for revenue?

Answer 10

Selling Price x quantity sold

[SPxQ]

Question 11

What is the equation for Total cost?

Answer 11

Fixed cost + Variable cost

[FC + VC]

Question 12

What is the equation for Profit?

Answer 12

Total revenue - Total cost

[TR - TC]

Question 13

What is the equation for Break-even output?

Answer 13

Fixed cost/Sales Price - variable cost per unit

[FC/SP - VC(pu)]

Question 14

What is the equation for Margin of safety?

Answer 14

Current sales - break-even sales

Question 15

How do you work out the variable cost on a graph?

Answer 15

Variable cost x quantity sold

Question 16

How do you work out the total cost on a graph?

Answer 16

[Variable cost x quantity] + Fixed cost

Question 17

How do you work out the total revenue cost on a graph?

Answer 17

Sales Price x Quantity

Question 18

What are the advantages of a break-even chart?

Answer 18

\+Helps set realistic targets
\+Helps raise money from banks
\+Provides good evaluation to assess if you are on target
\+Helps make pricing decisions 
\+Helps identify how to cover costs

Question 19

What are the disadvantages of a break-even chart?

Answer 19

+Only analyses one product
+If firms sell at different prices break-even constantly changes
+Doesn’t account for build up of stock or waste
+Does’t account the sell by date