Break even analysis

Question 1

What is the formula for break even points in units?

Answer 1

Fixed costs/contribution per unit

Question 2

What is the formula for break even points in sales?

Answer 2

Fixed costs/contribution margin

Question 3

What is the formula for profit target?

Answer 3

Fixed costs + Target profit/ Contribution per unit/ratio

Question 4

What is contribution per unit?

Answer 4

Measure of how much contribution is earned from each £1 of sales revenue

Question 5

What is margin of safety?

Answer 5

Difference between actual sales volume and breakeven sales volume

Question 6

What is the formula for MoS %?

Answer 6

MoS/Actual sales

Question 7

What is the formula for Sales required to earn target profit?

Answer 7

(Fixed costs + Required profit)/Contribution ratio

Question 8

What is true of traditional breakeven charts?

Answer 8

• The sales revenue line passes through the origin.
• The total cost line cuts the vertical axis at the point which is equal to the period fixed costs.

Question 9

What 3 assumptions need to be made when using limiting factor analysis in order to calculate maximum profit?

Answer 9

• Fixed costs in total are not changed by increases or decreases in production volume.
• Variable costs per unit are not changed by increases or decreases in production volume.
• Estimates of sales demand, prices and resources required for each product are known with certainty.

Question 10

What is the contribution formula?

Answer 10

Selling price - VC