Break Even Analysis

Question 1

Breakeven is when profits finally level off with costs.

Breakeven can be presented using a:
1.
2.

Answer 1

1. Formula.
2. Breakeven chart.

Question 2

What 6 things do you need in a break even chart:
1.
2.
3.
4.
5.
6.

Answer 2

1. Total revenue.
2. Total costs.
3. Fixed costs.
4. Margin of safety.
5. Area of profit/ loss.
6. Break even point.

Question 3

Margin of safety is what?

Answer 3

The number of units sold after the breakeven point.

Question 4

What are 2 advantages of analysing the contribution per unit:
1.
2.

Answer 4

1. Informs decisions such as setting up a selling price.
2. Straightforward to calculate.

Question 5

What are 2 disadvantages of analysing the contribution per unit:
1.
2.

Answer 5

1. Does not account for fixed costs.
2. Does not account for unexpected changes.

Question 6

What are 2 advantages of analysing breakeven:
1.
2.

Answer 6

1. Informs decisions such as setting up a selling price.
2. Sets targets to motivate employees.

Question 7

What are 2 disadvantages of analysing breakeven:
1.
2.

Answer 7

1. Does not account for unexpected changes.
2. May create stress if breakeven is high.