Changes in Revenue and Costs

• What is the break-even point (BEP) for a business?

  Point where revenue equals total costs
• Why do businesses calculate their break-even point?

  To determine when they start making profit
• What happens when revenue increases for a business?

  • Positive impact on profits
  • Helps surpass break-even point
  • Increases margin of safety
• What is the margin of safety in business terms?

  Difference between current output and BEP
• What is the effect of increasing costs on a business?

  It usually negatively impacts profits
• What must a business do if costs increase?

  Sell more products to break even
• What choice do businesses face when costs increase?

  Absorb costs or increase prices
• What is the impact of decreasing costs on a business?

  It is usually positive for profits
• What happens to the BEP when costs decrease?

  BEP is likely to lower
• What might a business do with savings from decreased costs?

  Keep savings as profit or lower prices
• What might customers expect if a business's costs decrease significantly?

  They may expect a price decrease