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Flashcards by keilly evans, updated more than 1 year ago
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| Question | Answer |
| what are total costs | variable costs + fixed costs |
| What does the 'Target Profit' show? | Calculating the 'Target Profit' shows the amount of output that needs to be sold in order to give a certain amount of profit |
| how do you calculate break even? | - fixed cost/(selling price-variable costs) |
| What are the 3 methods to calculate break even? | - Table Method - Formula - Graph Method |
| What does table method of calculating the break-even point look like? | |
| What is the formula to work out the break-even point? | - Selling Price (Per Unit) - Variable Costs (Per Unit) = Contribution per Unit - Fixed Costs / Contribution per Unit = Break-even point |
| What does Graph method of calculating the break-even point look like? | |
| What can break-even be used interpret? | - The information provided can help interpret what the profit would be after selling a certain amount of units. |
| What does the table to interpret what the profit would be after selling a certain amount of units, look like? | |
| What is the Margin of Safety? | - The amount by which sales exceed the break-even point |
| What are the 3 formulas to calculate margin of safety? | - No. of units : Sales volume - break-even point (units) - Sales Revenue amount : Sales volume - break-even point (units) x Selling price - Percentage : (current output - break-even output) (100) / Current output |
| What are the Advantages of break-even analysis? | - Useful for a new business in order establish the level of sales that must be achieved to reach break-even point. |
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| When do you use Break-even analysis? | - Before starting a new business - When making changes within a business |
| Explain why you should use Break-even analysis before starting a new business | - The calculation of break-even point is important in order to see the level of sales needed by the business in order to cover costs, or to make particular levels of profit. The feasibility of achieving the level can be considered by the owner of the business, and other parties such as the bank manager. |
| what is revenue and what is the calculation? | -all the money coming into a business price x quantity |
| Why is Break-even analysis used? | - To measure profits and losses - To answer 'what if?' questions - To evaluate alternative viewpoints |
| profit is..? | the amount of money coming in and out of a business |
| loss is..? | -the amount of money that goes out of a business |
| margin of safety is ...? | - the amount of sales over the break even point |
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