break-even

• calculation of break even output

  
• break even charts 


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• interpretation of break even charts 


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• interpretation of break even charts 


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• What are fixed costs?

  Costs that do not change with output
• What are variable costs?

  Costs that change with output levels
• What are total costs?

  Sum of fixed and variable costs
• What is revenue?

  Income generated from sales
• What is the break-even point formula?

  • Break-even point: Total fixed costs + Total variable costs = Total revenue
• What does break-even analysis help determine?

  When a business covers its costs
• What is the break-even output?

  Number of items to sell to break even
• What happens before reaching break-even?

  The business operates at a loss
• What happens after reaching break-even?

  Each unit sold contributes to profit
• Why might it take time for an airline to reach break-even?

  High fixed costs and variable demand
• What does contribution mean in business?

  Money generated after covering variable costs
• What does each sale contribute towards?

  First variable costs, then fixed costs
• What is contribution per unit?

  Difference between selling price and variable cost
• If a t-shirt sells for £11.50 and costs £4.00, what is the contribution?

  £7.50
• What is total contribution?

  Difference between total sales revenue and total variable costs
• If 100 t-shirts are sold at £11.50 each, what is the total sales revenue?

  £1150
• If total variable costs for 100 t-shirts are £400, what is the total contribution?

  £750
• What is margin of safety?

  Actual output above break-even output
• What do break-even charts visually represent?

  • Break-even point
  • Total costs vs. total revenue
  • Profit and loss at different sales levels
• How are fixed costs represented on a break-even chart?

  As a horizontal line
• How are variable costs represented on a break-even chart?

  Start at zero and slope upwards
• How are total costs represented on a break-even chart?

  Start at fixed costs and slope upwards
• How is total revenue represented on a break-even chart?

  Starts at zero and slopes upwards
• What are the strengths of break-even analysis?

  • Calculates minimum sales needed for profit
  • Predicts outcomes of changing variables
  • Aids decision making
• What are the weaknesses of break-even analysis?

  • Based on static cost and revenue assumptions
  • Ignores changes in variable costs
  • Does not ensure actual sales will materialize
• How does a higher selling price affect contribution per unit?

  It increases contribution per unit
• How does an increase in fixed costs affect break-even output?

  It increases break-even output
• What is the contribution in break-even analysis?

  It is the difference between selling price and variable costs
• How is contribution calculated?

  Contribution = Selling price - Variable cost per unit
• What formula is used to calculate the break-even point?

  Break-even = Fixed costs / (Selling price - Variable cost per unit)
• What happens to the break-even point if fixed costs increase?

  The break-even output increases
• What is the margin of safety in break-even analysis?

  • It measures how much output exceeds break-even level
  • Indicates how far demand can fall before losses occur
  • Vital during difficult trading periods
• What are the three lines represented on a break-even chart?

  • Fixed costs
  • Total costs
  • Total revenue
• What does a break-even chart visually represent?

  It shows fixed costs, total costs, and revenue
• What does the break-even point indicate on a chart?

  It indicates where total costs equal total revenue
• What is the fixed cost for A28 Limited?

  £8,000