Break-even Charts

Flashcards covering concepts related to break-even charts, including margin of safety, changing variables, strengths, and weaknesses.

What is the formula for calculating the margin of safety?

Margin of safety = output - break-even point

What do break-even charts primarily show?

They show profit or loss.

Name one factor that can cause fixed costs to change.

Landlord putting rent up, bank changing interest rates, or management wanting a pay increase.

Name one factor that can cause variable costs to change.

Raw materials changing in price, minimum wage being increased, or utility companies changing price.

Name two factors that can affect the selling price of a product.

New competition entering a market or positive word of mouth increasing demand.

What is one strength of using break-even charts for businesses?

They allow businesses to calculate the minimum number of sales needed before starting to make a profit.

How can break-even charts help a business with different output levels?

They can calculate the level of profit or loss at different outputs.

What is another strength of break-even analysis regarding variables?

It can predict the outcome of changing variables.

What is a main weakness of break-even analysis regarding its inputs?

It is based on predicted costs and revenues.

Why might break-even analysis be inaccurate regarding fixed costs in the long run?

Even fixed costs can vary in reality, especially in the long run.

Regarding quantities, what does break-even analysis sometimes ignore?

It ignores changes in variable costs or selling price as items are bought or sold in larger quantities.

What is a key limitation of break-even analysis regarding actual sales?

It only indicates the number of sales needed, it doesn't ensure actual sales.