2.2.3 break even

Question 1

what is break even

Answer 1

total revenue =total costs

Question 2

what is the calculation for break even point

Answer 2

fixed costs/contribution per unit

Question 3

what is the calculation for contribution per unit

Answer 3

selling price per unit - variable costs per unit

Question 4

what is the calculation for total contribution

Answer 4

total sales -total variable costs

Question 5

what is the calculation for total variable costs

Answer 5

variable cost per unit x quantity

Question 6

what is the other total contribution calculation

Answer 6

contribution per unit x number of units sold

Question 7

what is margin of safety

Answer 7

the margin of safety is the difference between actual output and the breakeven output

Question 8

what are 2 usefulness of breakeven analysis to start up businesses

Answer 8

• to get financial support such as a bank overdraft

- to acess the profitablity of success and to gain some idea of the level of risk,using the margin of safety

Question 9

what are some strengths of break even analysis

Answer 9

• it is flexible
• helps secure finance
• the calculations are quick and easy to complete

Question 10

what are some weaknesses of breakeven analysis

Answer 10

• information may be unreliable
• selling price may need to fall if more is to be sold
• variable costs per unit may not stay the same as output changes