Break-Even

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Created by
Lukas Skripka

Subdecks (1)

Cards (28)

  • What is break-even?
    The point at which a business is not making a profit or a loss
  • Break-even is the point that what = what?
    Total revenue = total costs
  • What is break-even output?
    The number of items a business has to sell to make total revenue equal total costs
  • Each time an item is sold the difference between the selling price and the variable cost is contributed towards the fixed cost
  • What is contribution per unit?
    The contribution per unit is the difference between the selling price per unit and the variable cost per unit
  • What does the contribution per unit cover?
    Fixed costs
  • What is total contribution?
    Total contribution is the difference between total sales revenue and total variable costs
  • What is the difference between total sales revenue and total variable costs?
    Total contribution
  • What is the difference between selling price per unit and variable costs per unit?
    Contribution per unit
  • How do you calculate break-even point?
    Fixed costs/contribution per unit
  • What is the margin of safety?
    How much actual ouput is above the break-even level of output
  • How do you calculate the margin of safety?
    Actual output level - break-even level of output
  • If a T-shirt firm sells 3000 t-shirts and the break-even point is 2000 t-shirts, what is the margin of safety?
    1000 t-shirts
  • What are the strengths of break-even?
    • Can calculate the level of profit or loss at different levels
    • Can predict the outcome of changing variables
    • Aids decision-making
    • An integral part of a business plan when seeking to secure finance
  • Break-even is an inegral part of what when going to a bank to secure finance?
    Business plan
  • What are the weaknesses of break-even?
    • Is based on predicted costs and revenues
    • Fixed costs can vary in reallity, especially in the long run
    • Ignores external factors such as competition
  • Why could competition affect break-even?
    New competitors to the market could affect demand for the products or cause the firm to change prices