5.5 Break Even

• Unit contribution = Price - Variable Cost
• Contribution to fixed costs (ie. break even quantity)=Fixed Cost/Unit Contribution
• Total revenue= Price x Quantity
• Total cost= Fixed Cost + (Variable costs x Quantity)
• Break-even point: Total revenue=total cost
• Profit or loss=Total Revenue - Total Cost
• Margin of safety= Level of demand - Break-even quantity
• Target profit quantity= (Fixed cost + Target profit) / (Price - Variable Cost)
• Contribution refers to the sum of money that remains after all direct and variable costs have bene taken away from sales revenue.
• Contribution margin = Price -Variable cost
• Total contribution refers to the quantity of output needed to go towards paying off total fixed costs.
• Unit contribution is the proportion of the selling price for each unit of output that will go towards paying off total fixed costs.
• Total contribution= Fixed cost/unit contribution
• Break-even exists when a firm makes neither a profit nor a loss and helps to determine the level of sales that must be generated for the firm to earn a profit.
• There are 3 ways to determine break even: unit contribution method, total revenue=total cost method and drawing a break even chart.
• The margin of safety is how many products you can sell before you no longer break even.