Unit 5 - Chapter 32: Break-even Analysis

Break-even

when a firm’s sales revenue covers all its production costs

Break-even point/quantity

the level of output at which total costs equal total revenue, where profit equals zero

Contribution per unit

the amount each unit of production contributes towards the fixed costs and profit of the business

contribution per unit = ______

selling price of a product - direct costs per unit

or

Selling Price (P) - Average Variable Cost (AVC)

Total Contribution

total contribution of all units sold

total contribution = ______

Unit contribution x output

or

(P-AVC) x Q

Margin of safety

the amount by which the current output level exceeds the break-even level of output

margin of safety = _____

(Current output - BE output)/(BE output) x 100%

Revenue to achieve target profit

the amount of revenue needed to cover both fixed and variable costs and earn the business a target profit