Break Even
- Created by: Sumtimesadness
- Created on: 24-02-14 18:28
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- Break Even
- Contribution is the difference between sales revenue and the variable costs of production
- contribution is not the same as calculating profit because fixed costs are not included
- selling price - variable costs
- total contribution= contribution per unit x no of units sold
- if the total contribution is greater than fixed costs the business is making a profit
- if the total contribution is less than fixed costs the business is making a loss
- an increase in contribution per unit raises the potential for the amount of profit a business can make
- contribution isn't the same as profit because fixed costs are subtracted
- contribution per unit can be increased by raising the selling price because sales revenue increases
- contribution per unit can be increased by reducing the variable costs
- Break Even output = Fixed costs / contribution per unit (selling price - variable costs)
- break even output is the level of output at which total sales revenue is equal to total costs of production
- break even analysis is the study of the relationship between total costs and total revenue to indentify when a business breaks evens
- the longer it takes to reach break even the higher the risk
- Break even makes the assumptions that the selling price stays the same, fixed costs stay the same, variable costs stay the same, every unit produced is sold
- strength of break even is to produce a best and worst case scenario to work out the amount of risk involved
- strength is how long it will take to reach the level of output to make a profit
- break even forecast can be used to show bank managers
- break even analysis allows for change and shows how a business would react
- the calculations are quick to produce and saving the business time
- break even forecast can be used to show bank managers
- strength is how long it will take to reach the level of output to make a profit
- weakness is information is unreliable
- break even output is the level of output at which total sales revenue is equal to total costs of production
- Untitled
- Contribution is the difference between sales revenue and the variable costs of production
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