5.5 break even analysis

Question 1

what is break even analysis

Answer 1

commonly used business management tool used by start-ups and firms deciding on whether to invest in certain projects or products.

used to determine the level of sales needed in order to cover all the costs associated with the output of a particular good or service.

Question 2

to be able to calculate break even what is needed?

Answer 2

calculation of contribution. Contribution per unit
Total contribution
Profit or loss
Break-even

Question 3

what is contribution per unit?

Answer 3

amount of money left over from the sale of a product after the variable costs have been deducted. amount that each product contributes to paying off the fixed costs of the business. expressed in currency $

Question 4

formula for contribution per unit

Answer 4

Price per – variable cost
unit per unit

Question 5

what is total contribution

Answer 5

amount that all products or services contribute to paying off the fixed costs of the business.
expressed in currency $

Question 6

what is the formula for total contribution

Answer 6

Contribution per unit x quantity

Question 7

Profit or loss WITH contribution

Answer 7

profit or loss can be calculated with contribution. Since we know that variable costs are covered with contribution per unit, the business just needs to pay off the fixed costs to make a profit.
expressed in currency

Question 8

formula to calculate profit or loss with contribution

Answer 8

Total contribution – fixed costs

Question 9

what is break even analysis

Answer 9

business planning tool that applies costs and revenue data to support decision making.
term break-even refers to the level of outputs a firm needs to achieve where total revenue equals total costs and the business starts to make a profit.
especially important for start up businesses or business engaging in new ventures to establish the minimum number of products they need to sell to cover all their costs.

Question 10

how can break even be shown

Answer 10

graph or calculated using a formula

Question 11

how can you calculate break even

Answer 11

fixed costs / contribution per unit or fixed costs / price - variable costs per unit

Question 12

what is break even

Answer 12

point at which a business is neither making a profit or a loss.

Question 13

Profit or loss with costs and revenue formula

Answer 13

Total revenue – total costs
expressed in currency

Question 14

in financial terms a business can be in 3 of either situations

Answer 14

loss, break even, profit

Question 15

what is loss in financial terms of a business state

Answer 15

(negative) when costs of production exceed the revenues of business

Question 16

what is break even in financial terms of a business state

Answer 16

0 when the revenues of the business equal the costs of production

Question 17

what is profit in financial terms of a business state

Answer 17

(positive) when revenues exceed costs of production