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Flashcards in Breakeven Deck (10):
1

What is the formula for breakeven?

BREAKEVEN = FIXED COSTS / (SELLING PRICE - VARIABLE COSTS)

2

What is breakeven?

- When a business is neither making a profit or a loss, they are covering their costs.

3

What is contribution?

- What a business needs to achieve from selling its products in order to first cover it's fixed costs and thereafter make a profit.

4

With regards to contribution, what is profit?

- Difference between contribution and fixed costs.

5

How is total contribution calculated?

TOTAL CONTRIBUTION = TOTAL REVENUE - TOTAL VARIABLE COSTS

6

How is contribution per unit calculated?

CONTRIBUTION PER UNIT = SELLING PRICE PER UNIT - VARIABLE COST PER UNIT

7

How is breakeven calculated in terms of contribution?

CONTRIBUTION = FIXED COSTS / CONTRIBUTION PER UNIT

8

Give at least three examples of the uses of breakeven.

At least three from:
1) It helps to decide whether a business idea is profitable and viable.
2) It identifies the level of output and sales needed to generate a profit.
3) It helps to assess the changes in the level of production.
4) It helps to assess the effects of costing and pricing decisions.

9

Give at least two examples of the benefits of breakeven analysis.

At least two from:
- It can be used to analyse the effects of varying customers, prices and costs on a business's profit.
- It is simple and easy to use.
- The breakeven point is a useful guideline to help businesses make informed decisions.

10

Give at least two examples of the limitations of breakeven analysis.

At least two from:
- It simplifies what can be a complex process - most businesses sell multiple products which makes breakeven more complex.
- Costs are rarely consistent - breakeven analysis presumes that costs stay the same over various levels of output.
- Breakeven focusses on output - it presumes that the business will sell all of its output at the same price.