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