What happens at the break-even point in terms of profit or loss?
No profit or loss
The break-even point is where total costs equal total revenue
Variable costs on a break-even chart start from zero
The formula for break-even quantity is Fixed Costs / (Selling Price per Unit - Variable Cost per Unit), where the denominator subtracts the variable cost from the selling price
What is the characteristic of fixed costs in calculating break-even sales revenue?
Do not vary with sales
The margin of safety is calculated as Current Sales minus Break-Even Sales
The break-even sales revenue represents the minimum revenue needed to avoid losses
Reducing fixed costs can decrease the break-even point
The break-even point indicates the minimum sales volume required for business viability.
True
Total costs are plotted as a line starting from the fixed cost level
The break-even quantity formula is: Fixed Costs / (Selling Price per Unit - Variable Cost per Unit
Knowing the break-even sales revenue helps determine the minimum revenue required to cover all expenses
On a break-even chart, fixed costs are plotted as a horizontal line
The break-even point indicates the minimum sales volume required for business viability.
True
The break-even point on a chart is where total costs and total revenue intersect.
True
What are fixed costs in the break-even quantity formula?
Constant expenses
The formula for break-even sales revenue is Fixed Costs / (1 - (Variable Costs / Selling Price per Unit)), where the ratio (Variable Costs / Selling Price per Unit) is subtracted from 1
A larger margin of safety indicates a business is less vulnerable to losses.
True
A lower break-even point suggests a business has a stronger financial foundation.
True
Steps to improve the margin of safety:
1️⃣ Diversify product portfolio
2️⃣ Expand into new markets
3️⃣ Improve cost control
What is the break-even point in sales terms?
Total revenue equals total costs
Order the components of a break-even chart based on their plotting on the graph.
1️⃣ Fixed Costs
2️⃣ Variable Costs
3️⃣ Total Costs
4️⃣ Total Revenue
5️⃣ Break-Even Point
The break-even point on a chart is where total costs intersect total revenue.
True
Knowing the break-even quantity helps determine the minimum sales volume required to cover all expenses.
True
A business with fixed costs of $10,000, variable costs of $5 per unit, and a selling price of $10 per unit needs to generate $20,000 in total revenue to reach the break-even point.
True
The break-even point indicates the minimum sales volume required for business viability.
True
What type of line is used to represent fixed costs on a break-even chart?
Horizontal
What is the break-even quantity in terms of units sold?
Number of units
Knowing the break-even quantity helps a business determine the minimum sales volume to cover all expenses.
True
What does the margin of safety measure?
How much sales can drop
What is the break-even point in terms of financial metrics?
Sales equals costs
What are two strategies to increase sales above the break-even point?
Expand marketing, introduce new products
Break-even analysis can help businesses manage costs and ensure long-term profitability.