Break even Flashcards
1
Q
What is break even and what is it’s equation?
A
The point at which total revenues equal total costs so the business is making neither profit or lost
= fixed costs/ contribution
2
Q
What is contribution?
A
Looks at the profit make on individual products
3
Q
What is the margin of safety and how do you calculate it?
A
The difference between actual output and the break even point
Actual sales- break even= margin of safety
4
Q
What are the pros and cons to break even analysis?
A
Pros: - helps reduce risk
- quick and easy
Cons: - unrealistic assumptions
- most business sell more then one product
- doesn’t take into account discounts
- variable costs do not always stay the same
5
Q
What is contribution equation?
A
Revenue- fixed costs
