Breakeven - ANSWER When revenue and expenditure are the same. there is no profit or
loss
variable costs - ANSWER raw materials, change as output increases
margin of safety - ANSWER is the amount by which sales would have to fall before the
break-even point is reached
total costs - ANSWER fixed costs plus variable costs
break-even point - ANSWER when a business has made enough money through product
sales to cover the cost of making the product
selling price - ANSWER total revenue divided by maximum number of products
increasing the price - ANSWER break even point falls
reduce the price - ANSWER break even point becomes higher
break even analysis - ANSWER planning tool that helps businesses to make the right deci-
sions and increase their chances of success
benefits of break even analysis - ANSWER business knows the fixed and variable costs
linked to a product.
1
, the business can set the best price for a product.
it allows the business to set a margin of safety.
risks of ignoring breakeven analysis - ANSWER the business does not know the costs of
production and running costs.
the business does not know how many items it must sell to make a profit.
the business may make a loss without realising or knowing why.
break even point will change - ANSWER if costs change or if the selling price changes
if costs fall - ANSWER the breakeven point is lower so the business makes a profit
the lower the breakeven point - ANSWER the fewer the sales needed to make a profit
total sales revenue formula - ANSWER number of sales times price per unit
to make a profit - ANSWER revenue must be higher than expenditure
profit formula - ANSWER revenue take away expenditure
netflow/outflow formula - ANSWER inflows take away outflows
net inflow - ANSWER increases money already in the bank
net outflow - ANSWER reduces the money already in the bank
improving inflows - ANSWER chase up late payments.
2
loss
variable costs - ANSWER raw materials, change as output increases
margin of safety - ANSWER is the amount by which sales would have to fall before the
break-even point is reached
total costs - ANSWER fixed costs plus variable costs
break-even point - ANSWER when a business has made enough money through product
sales to cover the cost of making the product
selling price - ANSWER total revenue divided by maximum number of products
increasing the price - ANSWER break even point falls
reduce the price - ANSWER break even point becomes higher
break even analysis - ANSWER planning tool that helps businesses to make the right deci-
sions and increase their chances of success
benefits of break even analysis - ANSWER business knows the fixed and variable costs
linked to a product.
1
, the business can set the best price for a product.
it allows the business to set a margin of safety.
risks of ignoring breakeven analysis - ANSWER the business does not know the costs of
production and running costs.
the business does not know how many items it must sell to make a profit.
the business may make a loss without realising or knowing why.
break even point will change - ANSWER if costs change or if the selling price changes
if costs fall - ANSWER the breakeven point is lower so the business makes a profit
the lower the breakeven point - ANSWER the fewer the sales needed to make a profit
total sales revenue formula - ANSWER number of sales times price per unit
to make a profit - ANSWER revenue must be higher than expenditure
profit formula - ANSWER revenue take away expenditure
netflow/outflow formula - ANSWER inflows take away outflows
net inflow - ANSWER increases money already in the bank
net outflow - ANSWER reduces the money already in the bank
improving inflows - ANSWER chase up late payments.
2
