2.2 Break Even Flashcards
(11 cards)
What is break even
The point at which total revenue and total costs are the same
Break even assumptions:
Selling prices is the same
Fixed costs is the same
Variable costs vary in direct relation to output
Everything is sold
What is contribution per unit
The amount of money each unit provides to paying off fixed costs
COntribution formula:
Selling price - variable costs per unit
Total contribution formula
COntribution * units sold
Break even formula
Total fixed costs / contribution per unit
Interpreting a graph
The straight line is fixed costs the line starting from the origin is revenue and the line starting from fixed costs is total costs the break even point is where these 2 lines meet
How breakeven reacts to rising costs
More units need to be sold breakeven rises
How breakeven reacts to falling costs
Less units need to be sold breakeven falls
How breakeven reacts to sale prices rising
Less units need to be sold breakeven falls
How breakeven reacts to sale prices falling
More units need to be sold breakeven rises
