7 - Break even

Question 1

what is break even

Answer 1

when the revenue generated from sales covers total costs

Question 2

uses of break-even

Answer 2

• decide whether a business idea is profitable and viable
• asses changes in the level of production
• asses the the effect os cost and pricing decisions

Question 3

break even point =

Answer 3

fixed costs/contribution

Question 4

contribution=

Answer 4

selling price-variable cost per unit

Question 5

contribution

Answer 5

the difference bwteen the variable costs of one unit and its selling price

Question 6

total contribution =

Answer 6

total output x contribution per unit

Question 7

interpreting break even point

Answer 7

the point where total revenue and total costs over is the breakeven point
any point before this, the busines is making a loss
any time after this the business is making profit

Question 8

margin of saftey

Answer 8

the difference between the break even point and the level of output
the bigger teh margin of saftey, the less the risk for the business

Question 9

benefits of break even analysis

Answer 9

• can be used to analyse the impact of varying customers,prices and costs on a bsuiness’s profit
• its simple
• usefull when making decisions

Question 10

limitations of break even analysis

Answer 10

costs are irregular
focuses on output - assuming everything is sold at the same price
over simplifies -most businesses sell multiple products