Relationship between revenue and costs

Question 1

What is Break-even?

Answer 1

the point at which a business is not making a profit or a loss i.e. it is just breaking even

At this point total costs must be the same as total revenue

Question 2

Break even output

Answer 2

the number of items that a business must sell to reach this point

Question 3

Contributing

Answer 3

when we give towards something

Question 4

contribution formula

Answer 4

selling price – variable cost

Question 5

Break even point formula

Answer 5

Fixed cost / contribution

Question 6

Why should businesses be cautious with break even?

Answer 6

It assumes that costs and revenues will be static, this is not true

Businesses are advised to consider the variables that might change and possibly look at several scenarios

Variables can change for the better or worse

Question 7

Advantages of break even

Answer 7

Shows how many sales are needed to start making a profit. This helps decide if
a business idea is worth doing.

Helps work out how much profit or loss might happen at different sales levels.

Shows what might happen if costs or prices change.

Question 8

Disadvantages of break even

Answer 8

It’s based on guesses about costs and sales, which might not be accurate.

Things like rent or bills can go up, especially over time.

Doesn’t account for discounts or extra costs when buying or selling in bulk.