2.2.3 Break even

Break even point

Where total revenue is equal to total costs

Shows business how many items it needs to sell the cover all costs

Fixed costs/Contribution

Margin of Safety

Difference between number of units needed to break even and actual level of units being output

Expressed in units

Actual output - Output required to break even

Limitations of break even analysis

1. Only useful for businesses selling one product

2. Assumes constant selling price and costs - does not consider economies of scale