Financial Management 8

Question 1

What is the break even point calculation

Answer 1

sales revenue - variable costs - fixed costs = 0

Question 2

what is the break even point

Answer 2

point where total costs = total revenue, this is at level output Q and at cost and revenue R

Question 3

break even point in units =

Answer 3

fixed costs/contribution in units

Question 4

target sales in units =

Answer 4

fixed costs + target profit / contribution per unit

Question 5

what is margin of safety

Answer 5

is the excess number of units sold over break even point

Question 6

what is the margin of safety percentage

Answer 6

margin of safety units/break even point in units

Question 7

uses of break even initial price setting

Answer 7

initially very high fixed costs when you set up business but not able to achieve high sales volume choice, high price or just at level to cover reoccurring fixed costs

Question 8

how can break even be used to evaluate marketing

Answer 8

can add cost of marketing to fixed costs so see extra sales quantity need to achieve

Question 9

limitation of break even

Answer 9

unrealistic assumptions (semi variable cost)
all units produced are not always sold
variable costs change with output (bulk discount)
many businesses make more than one product