LO4- be able to use financial information to check the financial health of a business

what is a business cost

money a business spends producing goods or services

What is an opportunity cost

The next best alternative

A depreciation is …

The fall in value of an asset over time

Revenue is…

the miney a business owns from sales

what is the formula doe break even

Fixed costs minus variable costs

What is the formula of margin of safety

Actual output - breakeven output

What is a margin of safety?

The mountain a business sells in excess of its break even point

What are the advantages of break even output ?

Easy to understand

Helps decision making

Shows how many units are needed to avoid loss

What are disadvantages of break even analysis?

Assumes costs and prices stays the same

Not realistic in real life

Ignores changes in demand

How can u lower break even point?

Reduce fixed costs or increase selling price

What are overheads?

Increased costs not directly linked to production

E.g. rent!!

Examples of fixed costs that don’t change are..

Rent

Salaries

Insurance

A variable costs change with output examples are

Raw materials

Packaging

Piece -rate Labour