Contribution and break even

What is break even?

The point where total revenue equals total costs, no profit or loss

What is contribution

Amount sales provide towards fixed costs and then profit

How is breakeven output calculated

Fixed costs/contribution per unit

How is total contribution calculated

Total revenue - Total variable costs

What is the margin of safety?

The amount sales can fall before the business reaches breakeven

How is margin of safety calculated?

Actual or forecast sales units - break even units

What is a benefit of breakeven analysis?

Helps set sales targets and assess changes in prices or costs

What is a limitation of breakeven analysis?

Assumes predictable prices and costs and does not guarantee demand