Business Finance :Unit 28

Question 1

• 1. What is the break-even point?

Answer 1

• level of output where total costs and total revenue are exactly the same.(neither profit nor loss is made)

Question 2

2. How to calculate the break-even point?

Answer 2

break even point = Fix cost
——————–
selling price- variable cost per unit

Question 3

3. What is a break-even chart?

Answer 3

graph that shows total cost and total revenue, and the break-even point where they intersect.

Question 4

4. What is the margin of safety?

Answer 4

• the amount of output available to be sold above the break-even point where the business makes a profit.

Question 5

5. What is bulk-buying? stockpile?

Answer 5

• buying goods in large quantities, which is usually cheaper than buying in small quantities.
• stockpile is a large supply of goods and so forth that are being kept for use or possible use in the future.

Question 6

6. What are the 4 things that must be included in the break-even chart?

Answer 6

• Level of output that a business makes a loss.
  -The break-even point
• Level of output above the break-even point the business makes a profit.
• The margin of safety

Question 7

7. What are the 3 limitations of the break-even chart?

Answer 7

• total costs may be curved due to a reduction in variable costs as a result of bulk-buying.
• Firms might not be able to sell what they produce thus, this is not shown in the break-even chart. It is assumed that all output is sold and no stocks are held.
• The accuracy of the break-even chart depends on how its constructed.