Break-even Analysis

Question 1

What is break-even?

Answer 1

Tool used to aid decision making process. Used to find level of output to cover all costs. When total revenue equals total costs.

Question 2

What are the disadvantages of break-even analysis?

Answer 2

Time consuming, could fall in between 2 numbers.

Question 3

How do you calculate breakeven?

Answer 3

Fixed costs / CPU (price - variable cost)

Question 4

How do you calculate margin of safety?

Answer 4

Actual output - break even analysis

Question 5

What does the margin of safety help a business assess?

Answer 5

Consequences of change

Question 6

How do you calculate number of goods needed to reach target level of profit?

Answer 6

(Fixed cost + target profit) / CPU

Question 7

What are the advantages and disadvantages of calculating the number of goods needed to reach target level of profit?

Answer 7

Advantages:
- graph/ chart is easy to view and interpret.
- aid decision making.
- margin of safety.

Disadvantages:
- based on predictions.
- variable costs could change.
- all goods may not be sold.