Break even (10)

• What is breaking even?

  When a business is breaking even, there is no profit and no loss
• What is contribution?

  The difference between the selling price per unit and the variable cost per unit is known as the contribution 
• How do you calculate break-even output?

  Break-even Output = Fixed Costs divided by the Contribution Per Unit.
• how do you calculate contribution?

  selling price – variable costs per unit
• to find profit or loss at different outputs, we must measure the difference between the revenue line and the total costs line at the given level of output.

  
• What is the margin of safety?

  The margin of safety in a business is the difference between output level and break-even output.
• An increase in the price will change the total revenue line. It will become steeper and will cut the total cost line sooner, resulting in break-even at a lower level of output.

  
• An increase in the variable costs will change the total cost line. It becomes steeper resulting in break-even at a higher level of output. If the costs were reduced, the opposite would happen.

  
• What are benefits of break even charts?

  gives a clear view of costs, revenue, and potential profit.

  help when seeking a loan.

  lets business owners use ‘what-if’ analysis to see how changes in costs and revenue affect profitability.
• Restrictions of a break even chart?

  ‘What-if’ analysis assumes only one product is sold, which isn’t realistic for most businesses.

  The relationship between costs/revenue and output/sales isn’t always linear.

  Some fixed costs are stepped, meaning they increase when a business expands.