Break - even analysis

• Fixed costs are costs which do not vary in the short run with the number of items sold or produced.
• Variable costs are costs which vary directly with the items sold or produced.
• Total costs are fixed and variable costs combined.
• Average cost per unit is the total cost of production divided by total output.
• Economies of scale are the factors that lead to a reduction in average costs as a business increases in size.
• Diseconomies of scale are the factors that lead to in increase in average costs as a business grows beyond a certain size.
• Break - even level of output is the quantity that must be produced/sold for total revenue to total costs.
• Break - even charts are graphs which show how costs and revenues of a business change with sales.
• Revenue is the income during a period of time from the sale of goods and services.
• Total revenue = quantity sold X price
• Break - even point is the level of sales at which total costs are equal to total revenue.
• Margin of safety is the amount by which sales exceed the break - even point.
• Break even level of production = total fixed costs / selling price - variable cost
• Contribution of a product is the selling price - variable cost.