Unit 3.3 Break Even Flashcards Preview

Edexcel Business by Channelle > Unit 3.3 Break Even > Flashcards

Flashcards in Unit 3.3 Break Even Deck (13)
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Definition of the BREAKING EVEN point..

Where the total revenue exactly matches the total costs and the business is not making a loss or a profit


Definition of break-even

The level of output where total costs=total revenue


What happens when more items are sold?

Total revenue increases more costs are covered


As costs rise...

break even point increases


As costs decrease...

break even point decreases


As selling price increases

break even point goes down


Break even point doesn't mean that profits are guaranteed from there but it does mean...

costs are covered


How to work out the margin of safety?

Total output-breakeven point


By establishing the breakeven point..

businesses are able to plan the levels of production they need to be profitable BUT this is once they are WITHIN THE MARGIN OF SAFETY
There is a higher when total costs are much less than total revenue


Benefits fo breakeven analysis tool..

useful tool for working out the minimum sales required to ensure a loss isn't made
can set sales targets fro staff, helps to improve productivity and can measure performance of staff BUT THIS IS ONLY A FORECAST


The breakeven analysis tool is only really useful when

used with other forecasting techniques such as market research


What are the problems with the tool?

It is only a forecast
it makes assumptions about various factors... 3 FOR EXAMPLE, all the units are sold/ forecasts are reliable/ external environment is safe


What could happen to make it take longer for a business to reach the break even point than they had anticipated?

Economic recession
Rivals enter the market