Theme 2 Topic 10 - Breakeven

Question 1

Define Break Even

Answer 1

When the total revenue is equal to total costs so neither a profit or loss is made

Question 2

Define Break Even Point

Answer 2

The number of products the business needs to sell so total revenue equals total costs

Question 3

Break Even Output =

Answer 3

Total Fixed Costs/Contribution Per Unit

Question 4

Contribution Per Unit =

Answer 4

Price Per Unit - Variable Costs Per Unit

Question 5

Define Contribution Per Unit

Answer 5

Looks at how much the sale of one product contributes towards paying off the fixed costs

Question 6

Define Total Contribution

Answer 6

Looks at how much the sale of all the businesses products contribute to paying off the fixed costs

Question 7

What are the two calculations for Total Contribution?

Answer 7

Total Revenue - Total Variable Costs
OR
Unit Contribution x Total Number Sold

Question 8

What are three disadvantages of break even analysis?

Answer 8

Only useful for businesses selling one product, Only as accurate as the data on which it is based, Costs don’t rise as steadily as the technique suggests

Question 9

What are three ways a business can reduce their break even output?

Answer 9

Reduce fixed costs, Reduce variable costs per unit, Increase selling price

Question 10

Define Margin of Safety

Answer 10

Shows how many units of sales can afford to be lost before the business starts making a loss

Question 11

Margin of Safety =

Answer 11

Actual Output - Break Even Output