Break-Even

• What is the formula for profit in break-even analysis?

  Profit = (P x Q) - (FC + VC)
• What does the break-even point represent?

  It is when total revenue equals total costs
• At the break-even point, what is the profit status of a business?

  The business is making neither a loss nor profit
• How much does each burger contribute towards fixed costs?

  £2.50
• If the selling price is £4 and variable cost is £1.50, what is the contribution margin?

  £2.50
• What is the break-even formula?

  Break-even = fixed costs / contribution
• If fixed costs are £200 and contribution is £2.50, how many units need to be sold to break even?

  80 units
• What does the margin of safety represent?

  The difference between actual sales and break-even point
• How is margin of safety calculated?

  Margin of Safety = actual sales - break-even point
• What are the advantages of break-even analysis?

  • Helps plan product sales for profit
  • Assists in setting business targets
  • Aids in pricing and cost judgments
  • Supports loan applications
• What are the disadvantages of break-even analysis?

  • Assumes single price for all products
  • Assumes constant cost increases
  • Does not account for bulk buying benefits
• What does a break-even chart illustrate?

  • Cost and revenue relationships
  • Break-even point
  • Profit and loss areas
  • Margin of safety