5.5 Flashcards
(14 cards)
What is the break-even point?
a situation where the total revenue equals the total costs of production
What is contribution per unit?
the amount of money left after the variable costs per unit has been subtracted from the price per unit
What is total contribution?
The sum of all the contributions per unit of a product at a certain quanitity
What is break even quantity?
the quantity of product that needed to be sold to reach the break even point
What is margin of safety?
The difference between the break-even quantity and the actual level of output. It shows how far the output can fall before the business starts to experience losses
How do you calculate target profit?
profit = (output x contribution per unit) - fixed costs
How does changes in total revenue impact the break even quantity?
As the total revenue increases, the break even quantity decreases
As the total revenue decreases, the break even quanitty increases
How does changes in fixed costs impact the break even quantity?
As fixed costs increases, the break even quantity increases
As fixed costs decreases, the break even quantity decreases
How does changes in variable costs impact the break even quantity?
As the variable costs increases, the break even quantity increases
As the variable costs decreases, the break even quantity decreases
What are the uses and limitations of break even analysis?
break even analysis can be used as a business plan, for financing, and for strategy changes
its limitations are that theres changing assumptions, costs and revenues are not linear, and its time consuming
What is contribution costing?
a cost accounting method that only considers the direct costs of the product, department, or region to covering the indirect costs of the business as a whole
What is absorption costing?
a cost accounting method that involves dividing the indirect costs among the products, departments, or regions based on predetermined criteria such as output, sales revenue, number of employees, etc.
What are the uses of contribution analysis?
contribution analysis can be used for break-even, choosing what work to take on, and making/buying a product or componenet
What are the limitations of contribution analysis?
limitations are that its based on many assumptions about the internal and external conditions of the business
