Break-even Flashcards
What is break-even?
Break-even refers to the point at which the business does not make a profit or a loss (total costs = total revenue).
Describe fixed costs
Costs which do not change as production/output changes e.g. rent.
Describe variable costs
Costs which vary directly as production/output changes e.g. raw materials and labour.
Describe revenue
Total sales made from selling products/services.
Revenue = Selling price x Number of units sold
Advantages of break-even analysis
You can see at a glance how many units need to be sold before a profit starts to be made.
Can see how much profit or loss is being made at different levels of output.
It can aid decision making, such as whether to change the selling price.
Disadvantages of break-even analysis
Difficult to use if the business makes more than one product.
It assumes that all units produced are sold.
Doesn’t take sudden increases in wages or prices into consideration.
