Break even

Question 1

what is sales revenue?

Answer 1

money coming into a business via sales

Question 2

what is the formula for sales revenue?

Answer 2

Formula = Revenue = price x quantity sold

Question 3

what are costs?

Answer 3

money coming out of the business in order to continue operating

Question 4

what are fixed costs?

Answer 4

costs that dont change, these costs are paid even if the business doesn’t sale any products

Question 5

what are variable costs?

Answer 5

these costs do vary with the level of output e.g costs of wood, Furniture business has to pay more wood if they make more furniture

Question 6

whats the formula for variable costs?

Answer 6

Formula = Variable cost per unit x number made.

Question 7

what are total costs?

Answer 7

The total cost are the sum of all the costs in the business, they are fixed and variable costs added together

Question 8

what is the formula for total costs?

Answer 8

Formula = Fixed costs + variable costs

Question 9

what is break even?

Answer 9

This is the point at which a business is not making a profit or a loss which means that the money being received from sales is the same as the money being spent on costs.

Question 10

what are the 3 ways money coming IN to business can be worded ?

Answer 10

Total sales
Sales in value
Sales in volume

Question 11

what are the 3 ways money OUT of a business can be worded in a exam?

Answer 11

Fixed cost
variable cost
Semi variable

Question 12

what is the formula for break even?

Answer 12

Formula = Fixed costs / (sales price - variable costs)

Question 13

what is the formula for contribution per unit?

Answer 13

Selling price - variable costs per unit

Question 14

what is the formula for total contribution is calculated as?

Answer 14

Sales revenues - total variable costs

Question 15

how do you calculate total variable costs?

Answer 15

Variable cost per unit x quantity
OR
Contribution per unit x number of units sold

Question 16

give 3 benefits of calculating contribution per unit ?

Answer 16

• Straightforward to calculate
• Allows for the calculation of break even level of output
• Can be used to inform decisions, e.g what price to charge

Question 17

give 3 the limitation of calculating contribution per unit?

Answer 17

• Does not take into account fixed costs
• Assumes that prices remain constant
• Does not take into account any unexpected changes to variable, e.g selling price and variable costs can fluctuate

Question 18

give 3 advantages of break even?

Answer 18

• The business knows how many items to sell in order to break even
• Can set goals
• Helps identify fixed and variable costs
• Can identify if the costs are too high for a business allow them to look for ways to lower costs
• Informs decisions on what price to charge

Question 19

give 3 disadvantages of break even

Answer 19

• Does not take into account variations in costs or selling price
• Forecast sales may not be achieved and hence, even though the break-even point it known it may not be achieved
• Targets may be too high

Question 20

what is variable costs, give an example of it?

Answer 20

part of the cost stay the same and part varies in a relation to the degrees of the business activity
E.g a worker may be paid a fixed rate of pay but at a busy time earns additional payment through overtime

Question 21

what is semi variable costs?

Answer 21

part of the cost that stay the same and part varies in a relation to the degree of the business activity

Question 22

what is margin of safety?

Answer 22

the actual number of units sold over and above the break even point (safety net)

Question 23

what is the formula for margin of safety?

Answer 23

break even point = actual sales in unit - break even level of output