Contribution and breakeven Flashcards Preview

AS Business Studies Theme 2 > Contribution and breakeven > Flashcards

Flashcards in Contribution and breakeven Deck (11)
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1
Q

How is contribution per unit calculated?

A

Contribution/unit = selling price/unit - variable costs/unit

2
Q

How can total contribution be calculated?

A

Total contribution = contribution/unit x number of units
OR
Total revenue - total variable costs

3
Q

Define BREAKEVEN

A

Breakeven is the point where the business is making neither a profit nor a loss –> total revenue is equal to total costs.

4
Q

Define BREAKEVEN OUTPUT

A

Breakeven output is the number of units that need to be sold in order to reach the point of breakeven.

5
Q

Define BREAKEVEN ANALYSIS

A

Breakeven analysis is the study of the relationship between total costs and total revenue in order to identify the level of output the business breaks even.

6
Q

How is breakeven output calculated?

A

Breakeven output = fixed costs/contribution per unit

7
Q

What are the strengths of breakeven analysis?

A
  • Allows the entrepreneur to predict future profit levels and set goals and targets accordingly
  • Calculations are quick and easy to do
  • Businesses can look at the worst case scenario
8
Q

What are the weaknesses of breakeven analysis?

A
  • The information may be unreliable
  • Assumes that every unit is sold
  • Assumptions may change if more is sold
9
Q

What are the different parts of a breakeven chart?

A

Fixed costs line, variable costs line, total costs line, margin of safety, total revenue line

10
Q

Define MARGIN OF SAFETY

A

A margin of safety is the difference between the actual output and the breakeven output.

11
Q

How is the margin of safety calculated?

A

Margin of safety = actual output - breakeven output