Chapter 7

• What happens once fixed costs are covered by contributions?

  Extra sales contribute to profit
• What is the break-even point in terms of profit and loss?

  No profit, no loss at break-even
• What is the break-even point formula?

  BEP = Fixed Costs / Contribution
• What does the margin of safety indicate?

  Units sales above break-even point
• What is the contribution per unit formula?

  Selling price - variable costs
• What is the formula for calculating total contribution?

  Total contribution = total sales - total variable costs
• What does a break-even chart visually represent?

  Relationship between costs, revenue, and output
• contribution

  the amount each sale provides towards fixed costs or profit
• break-even point

  • the level of output at which total costs are covered
  • fixed costs / contribution