1.6.2 relationship between revenue and costs Flashcards
(6 cards)
1
Q
What is contribution?
A
The profit made on each product.
2
Q
What is the formula for contribution?
A
Selling Price - Variable Cost Per Unit
3
Q
What is the formula for break even?
A
Fixed costs/Contribution
4
Q
What is the formula for total contribution?
A
Contribution Per Unit x Number of Units Sold
5
Q
What is the margin of safety?
A
The difference between the actual level of output and the break-even level of output. It indicates how much sales can fall by before the firm reaches the break-even point.
6
Q
What are the assumptions made for break-even analysis? [4]
A
- Selling price per unit is constant and does not change with quantity produced
- Variable cost per unit is the same
- Fixed costs do not change with output
- Everything produced is sold
