5.4 Break-even

• The break-even point is where total revenue equals total costs
• Revenue is the total income generated from sales.


  True
• Net profit is gross profit minus operating expenses and taxes.

  True
• Steps to calculate the break-even point using the equation:

  1️⃣ Identify fixed costs

  2️⃣ Determine selling price per unit

  3️⃣ Calculate variable cost per unit

  4️⃣ Apply the break-even equation
• What is the selling price per unit in the break-even equation?

  Price of each product
• Fixed costs are expenses that do not change with the level of output
• The break-even point is the number of units that must be sold to make neither a profit nor a loss
• Match the factor with its description:

  Fixed Costs ↔️ Costs that do not change with output

  Variable Costs ↔️ Costs that change with output

  Selling Price ↔️ The price at which the product is sold
• Match the term with its definition:

  Revenue ↔️ The total income from sales

  Costs ↔️ The expenses incurred in production

  Profit ↔️ The difference between revenue and costs
• Costs are the expenses incurred in producing and selling goods or services
• Match the cost type with its example:

  Fixed Costs ↔️ Rent

  Variable Costs ↔️ Raw materials
• Understanding fixed and variable costs helps businesses manage their financial performance effectively.
• What are fixed costs in the break-even equation?

  Expenses that do not change with output
• The break-even point in units is calculated as fixed costs divided by selling price per unit minus variable cost per unit
• Variable costs per unit are costs that vary with the level of output
• Match the break-even chart element with its representation:

  Fixed Costs ↔️ Straight horizontal line

  Total Costs ↔️ Increases linearly from fixed costs

  Total Revenue ↔️ Increases linearly from the origin
• Total costs include both fixed and variable costs.

  True
• The selling price is the cost incurred to produce each unit.

  False
• The selling price is the price at which a product or service is sold
• Gross profit is revenue minus the cost of goods
• Match the cost types with their examples:

  Fixed Costs ↔️ Rent, insurance, salaries

  Variable Costs ↔️ Raw materials, hourly wages
• Fixed costs remain constant regardless of the level of output.

  True
• What is the formula to calculate the break-even point in units?

  Fixed costs / (Selling price per unit - Variable cost per unit)
• Variable costs per unit are the expenses that remain constant regardless of output levels.

  False
• Fixed costs, such as rent, increase with higher levels of output.

  False
• Fundamental concepts in finance include revenue, costs, and profit
• Fixed costs and variable costs are two primary categories of expenses
• What is an example of a variable cost?

  Hourly wages
• Match the component with its description:

  Fixed Costs ↔️ Expenses that do not change with output

  Selling Price ↔️ The price at which the product is sold

  Variable Costs ↔️ Costs that vary with output
• What is the break-even point in business terms?

  Total revenue equals total costs
• What is the selling price per unit in the break-even equation?

  The price each item is sold at
• To break even, a business must sell enough units to cover all its costs.


  True
• Total revenue increases linearly with the number of units
• Match the break-even chart zone with its description:

  Profit Zone ↔️ Area above the break-even point

  Loss Zone ↔️ Area below the break-even point
• Variable costs are expenses that change with the level of output
• Arrange the following sales levels by their profit/loss outcome, from loss to profit:

  1️⃣ 1,000 cakes: Loss of £3,000

  2️⃣ 1,250 cakes: Break-even

  3️⃣ 1,500 cakes: Profit of £2,000
• At the break-even point, a business makes neither a profit nor a loss.


  True
• Match the financial terms with their definitions:

  Revenue ↔️ Income from sales

  Costs ↔️ Expenses incurred in production

  Profit ↔️ Difference between revenue and costs
• Higher fixed costs increase the break-even point
• The break-even equation is: Fixed costs / (Selling price per unit - Variable cost per unit