Break Even Analysis

What does break even point show?

• where a business is neither making a profit or loss
• how many items to make
• how much profit they're making
• where a business has more fixed costs than variable

What is one limitation to calculating break even?

• helps projected sales
• based on estimates
• based on multiple products
• considers stock wastage

Define variable costs.

• costs only related to making the product
• overhead costs
• combined costs
• costs that include marketing

Businesses calculate break-even in units so they know

• how much profit they will earn after they break even
• which products they should purchase for resale
• which costs are variable and which are fixed
• how many products they must sell to break even

What is the formula for contribution?

• cost price - selling price

• fixed costs - variable costs

• selling price - variable cost

• selling price - cost price

Some business costs are classified as fixed costs because they

• must be paid within a set time
• don't change when sales go up or down
• are unpredictable and must be estimated
• cost all businesses the same amount

My total costs are £50,000 when selling 100 items. My fixed costs are £20,000. What must be the variable cost of one item? 

• £300
• £500
• £200
• Cannot be calculated

What assumption does this statement say "Break even is 54 units"?

• if we sell 55 we aren't making a profit

• if we sell 54 we begin to make a profit

• if we sell 55 we begin to make a profit

• if we sell 54 we are not yet at break even point

A high times debtors turnover indicates: 

• the entity’s sales have increased. 
• a large percentage of the entity’s sales are on credit. 
• customers are clearing debts more quickly. 
• customers are clearing debts more slowly.  

The gross profit margin ratio is calculated by dividing: 

• profit by sales revenue. 
• profit by shareholders’ equity. 
• gross profit by sales revenue. 
• sales revenue by cost of sales.