Break even analysis

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13 Terms

1
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Break even

Point of production where firms revenue is equal to total costs of production

2
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Margin of safety

Difference between firms current level of output and break even output

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Break even formula

Fixed costs/contribution

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What does break even help do

  • analyse impact of a change in the environment on the business

  • Decide whether or not to accept an order for products at a different price from normal

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What methods does break even use

  • contribution method

  • Break even charts

  • Break even graph

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What happens to breakeven if variable costs increase

Breakeven output increases

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What happens if variable costs decrease

Breakeven decreases

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What happens to breakeven output if fixed costs increase

Breakeven increases

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What happens to breakeven output if fixed costs fall

Breakeven costs decrease

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What happens to breakeven output if selling price rises

Breakeven output decreases

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What happens to breakeven output if selling price decreases

Breakeven output rises

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Breakeven graph

4.2 – Costs, Scale of Production and Break-even Analysis – IGCSE AID4.2 – Costs, Scale of Production and Break-even Analysis – IGCSE AID640 × 417

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Calculating actual output

Breakeven output + margin of safety