2.2.3

• breakeven 


  the point at which the business is not making a profit nor a loss
• break even calculation 


  fixed costs / contribution per unit
• contibution per unit


  selling price - variable cost per unit
• variable cost per unit 


  total variable cost / sales volume
• profit 


  sales reveune - fixed costs
• margin of safety 


  how much actual output is above the break-even level of output
• margin of safety calculation

  actual level of output - break even level of output
• limitations of break even 


  unrealistic assumptions- not all products are always sold

  sales are unlikely to be the same as output

  variable costs do not always stay the same

  many businesses sell more than 1 product

  planning aid rather than decision making tool