Breakeven Flashcards
What are the advantages of breakeven ?
Helps measure profit and losses
Helps predict the effect of changes in sales prices
What are the disadvantages of breakeven?
Assumes that the sales prices are constant at all levels of output
Assumes production and sales and the same
Time consuming to prepare
What is the equation for selling price?
Total revenue \ total output
What is the equation for revenue?
Selling price x quantity sold
What is the equation for profit ?
Revenue - total cost
Why is it important for a business to monitor and control its cost?
To prevent over spending
Budget control
What is contribution?
What a business needs to achieve from selling products in order to cover its costs and then make a profit
What is the equation for total contribution?
Total revenue - variable costs
What is the equation for contribution per unit?
Selling price per unit - variable cost per unit
What is the equation for break even out out?
Fixed costs / contribution per unit
What is breakeven?
Break even is when total revenue is equal to total costs
What is variable costs?
Where costs vary in relation to output
What are fixed costs?
Fixed costs do not vary in relation to output
What is margin of safety?
Margin of safety is the difference between actual output and breakeven output
What is the equation for profit loss ?
Total revenue - total costs
