Break-Even Analysis Flashcards

Vocabulary flashcards related to break-even analysis, covering key terms, calculations, and components.

Break-Even Point

The point where total revenue equals total costs.

Contribution

The difference between sales revenue and variable costs of production.

Contribution per unit

Difference between the selling price of one unit and the variable cost of producing one unit.

Total Contribution

Contribution per unit multiplied by the number of units sold.

Break-even level of output

The level of output or the number of customers where total revenue equals total costs.

Margin of safety

The amount by which the existing level of output is greater than the break-even point.

Break-even output

Fixed Costs divided by Contribution per unit

Contribution per unit

Sales Revenue per unit minus Variable Cost per unit

Total Contribution

Contribution Per Unit x Qty Sold

Total Contributions

Sales revenue – VC

Profit

Total contributions – FC

Break-Even Point Formula

Fixed Costs/(Selling Price - Variable Costs)

Fixed Costs

These MUST be paid even if no items are sold: Rent, Managers Salaries, Insurance, Rates

Variable Costs

These are only paid as items are made/sold: Raw Materials, Wages, Power (for machines)

Contribution pu

Selling Price pu – Variable Costs pu

Break-Even

Fixed Costs / Contribution Per Unit

Cadbury’s Fingers Break-Even

£1,200,000 / (£2.79-£1.25)

Dizzee Rascal Break-Even

(£5,250,000 - £4,000,00) / £8

Total contribution

Contribution per toy x number of toys = £59 x 4000 = £236 000

Profit calculation

total contributions minus fixed costs = profit

MARGIN OF SAFETY

The difference between the break- even level of output and the actual level of output.