Flashcards in Breakeven Deck (10):
What is the formula for breakeven?
BREAKEVEN = FIXED COSTS / (SELLING PRICE - VARIABLE COSTS)
What is breakeven?
- When a business is neither making a profit or a loss, they are covering their costs.
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.
With regards to contribution, what is profit?
- Difference between contribution and fixed costs.
How is total contribution calculated?
TOTAL CONTRIBUTION = TOTAL REVENUE - TOTAL VARIABLE COSTS
How is contribution per unit calculated?
CONTRIBUTION PER UNIT = SELLING PRICE PER UNIT - VARIABLE COST PER UNIT
How is breakeven calculated in terms of contribution?
CONTRIBUTION = FIXED COSTS / CONTRIBUTION PER UNIT
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.
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.