Break even and shiz like that fr fam Flashcards
(28 cards)
What is revenue and calculation
money made from sales
quantity of units sold x selling price
What is profit
total revenue- total costs
What are fixed costs
costs that do not vary with output such as rent, mortgage, utilities:
What are variable costs
vary in direct proportion to output as output increases variable costs will increase and vice versa
Why can output increases yet variable costs per unit fall
business benefits from purchasing economies of scale
What are semi variable costs
labour may increaee as staff may work extra time so can be fixed or variable
What are direct costs
costs from production of product or service such as raw materials
What is breaking even
when there is no profit snd no loss
revenue=total costs
How to calculate break even output
fixed costs/contribution per unit
What is the contribution per unit
selling price-variable costs per unit
What is the margin of safety
output-breakevenoutput
Why do businesses need to ensure a healthy margin of safety
incase of unexpected drop in sales and small margin of safety would put a business at risk
Benefits if break even
provides simple and easily understood representation of costs, revenue and potential profit
useful part of plan to obtain loan
what if analysis and aee what happen if costs rise and see impact on break even or margin og safety to prepare for it
Drawbacks
-linear relationship of cost/revenue as economies of scale may come into play as output increases
-assumes all goods are produced snd sold at same price yet stock is lost we damaged and poor quality will be discontinued
- assumes only one product is produced and sold which is rarely the case
-some fixed costs are stepped and will increase as business acquires more capacity
What is revenue
money made from sales
quantity sold x selling price
What is profit
total rev-total costs
Fixed costs
costs that will not vary with output
rent,business rates, salaries
What are variable costs
costs that will vary with output as are in direct proportion with output
Why may variable costs drop as output increases
benefits from economies of scale so as output increases variable costs may fall
Semi variable costs?
could be fixed staff who work 38 hours a week but do 5 hours overtime
What are direct costs
costs from directly producing product or providing service
raw materials, direct labour
What is break even
when sales revenue=total costs so nonprofit and no loss is madr
Break even output=
total fixed costs/contribution per unit
Contribution per unit is
selling price per unit-variable costs
