10.2 Break-even analysis

Cards (36)

  • What is the break-even point in business terms?
    No profit or loss
  • What are fixed costs in break-even analysis?
    Costs that don't change
  • How do you calculate the break-even point in units?
    Fixed costs / contribution margin
  • What does a break-even chart help a business understand?
    Profitability at different sales levels
  • Steps to calculate the break-even point in units
    1️⃣ Identify fixed costs
    2️⃣ Calculate contribution margin
    3️⃣ Determine break-even point in units
  • The contribution margin per unit is calculated by subtracting the unit variable cost from the unit selling price.
  • Why are total fixed costs important in break-even analysis?
    They don't change with sales
  • Match the break-even formula term with its calculation:
    Total Fixed Costs ↔️ No formula; given value
    Contribution Margin per Unit ↔️ Selling Price per Unit - Variable Cost per Unit
    Break-Even Point (Units) ↔️ Total Fixed Costs / Contribution Margin per Unit
  • The contribution margin formula is: Unit Selling Price minus Unit Variable Cost.
  • The break-even point is where a business starts making a profit.
    False
  • The break-even formula calculates the number of units required to cover total costs.
  • The contribution margin is calculated by subtracting fixed costs from revenue.
    False
  • The break-even point in sales value is found by multiplying the break-even point in units by the unit selling price.
  • Break-even analysis can only be applied to manufacturing businesses.
    False
  • What do total fixed costs represent in the break-even formula?
    Costs that don't change
  • The break-even point is where a business's total revenue equals its total costs.

    True
  • Variable costs remain constant regardless of production volume.
    False
  • What does the break-even point in units indicate?
    Units to cover all costs
  • Steps to calculate the break-even point in units
    1️⃣ Identify total fixed costs
    2️⃣ Calculate contribution margin per unit
    3️⃣ Apply the break-even formula
  • Total fixed costs are costs that do not change with the level of sales
  • If the selling price per unit is $50 and the variable cost per unit is $30, the contribution margin per unit is $20.

    True
  • Contribution margin is calculated as unit selling price minus unit variable cost
  • What does the break-even point in units represent?
    Units to cover all costs
  • If total fixed costs are $50,000 and contribution margin per unit is $20, what is the break-even point in units?
    2,500 units
  • A break-even chart shows the relationship between costs and revenue at different levels of production.
    True
  • The profit zone in a break-even chart is above the break-even point
  • Match the application of break-even analysis with its benefit:
    Pricing Strategies ↔️ Determines minimum selling price
    Cost Management ↔️ Highlights impact of reducing costs
  • What is the formula for calculating the break-even point in units?
    Total Fixed Costs / Contribution Margin per Unit
  • How is the contribution margin per unit calculated?
    Selling Price - Variable Cost
  • What are examples of fixed costs?
    Rent, insurance, administrative salaries
  • Understanding the contribution margin helps businesses determine the profitability of each unit sold.

    True
  • The break-even point in units is calculated as total fixed costs divided by contribution margin per unit
  • Match the component with its description:
    Contribution Margin Ratio ↔️ Percentage of revenue covering fixed costs
    Break-Even Point in Sales Value ↔️ Total revenue needed to break even
  • What does the total revenue line in a break-even chart show?
    How revenue changes with sales volume
  • Steps for interpreting a break-even chart
    1️⃣ Identify the break-even point
    2️⃣ Determine the loss zone
    3️⃣ Determine the profit zone
    4️⃣ Analyze the relationship between costs and revenue
  • Break-even analysis can help identify cost reduction opportunities.

    True