Contribution and break-even analysis

Question 1

Contribution per unit =

Answer 1

Selling price - Variable cost per unit

Question 2

Total Contribution =

Answer 2

Contribution per unit x Number of units sold

Question 3

Contribution per unit =

Answer 3

Total revenue - total variable costs

Question 4

What is the break-even point?

Answer 4

The level of sales where revenue is exactly equal to total costs.

Question 5

What is the level of profit at the break-even point?

Answer 5

Zero

Question 6

Break-even point =

Answer 6

Fixed costs / Contribution per unit

Question 7

Margin of safety =

Answer 7

Actual level of sales - Break-even point

Question 8

Contribution sales ratio =

Answer 8

Contribution per unit / selling price

Question 9

Break-even point in revenue =

Answer 9

Fixed costs / Contribution sales ratio

Question 10

When can break-even analysis be used?

Answer 10

Assess viability of new business
Set sales targets
Support applications for bank loans

Question 11

Limitations of break-even analysis?

Answer 11

Figures for selling price and costs may be incorrect

Fixed costs eventually increase at a level of output.