Break Even Quiz

Imagine Jennifer runs a coffee shop. What are her fixed costs?

• Costs that vary depending on the level of coffee produced

• Costs that do not change with the number of coffees brewed

• The total of all costs associated with brewing coffee

• Costs that include both brewing and non-brewing expenses

Answer explanation

Fixed costs are costs that do not change with the level of production, meaning they remain constant regardless of the output volume.

Imagine Tony's bakery increases its production of cookies from 100 to 200 units a day. How would the cost of flour, an ingredient in cookies, be classified?

• Fixed costs

• Variable costs

• Total costs

• Contribution

Answer explanation

Variable costs are costs that change with the level of production, meaning they increase or decrease as production levels change. If you make more cakes you would use more sugar, make less cakes and you use less sugar

Elsa is starting a bakery. How does she calculate her total costs?

• Fixed Costs + Variable Costs

• Fixed Costs - Variable Costs

• Variable Costs / Fixed Costs

• Fixed Costs / Variable Costs

Answer explanation

Total costs are calculated by adding fixed costs and variable costs together.

At what point does Angela's coffee shop not make a profit or loss?

• When the coffee shop's total costs exceed its total sales

• When the coffee shop's total sales exceed its total costs

• When the coffee shop's total costs are equal to its total sales

• When the coffee shop's variable costs are equal to its fixed costs

Answer explanation

The break even point is when total costs are equal to total sales, indicating that the company has neither made a profit or a loss.

Julie's Cafe had a certain amount of sales last month. How can she calculate the margin of safety based on her current sales and break-even sales?

• Current Sales - Break Even Sales

• Break Even Sales - Current Sales

• Fixed Costs / Contribution per Unit

• Variable Costs / Total Sales

Answer explanation

The margin of safety is calculated by subtracting the Break Even Sales from the Current Sales. This helps determine how much sales can drop before the company starts making a loss

Charlie runs a lemonade stand. What does the contribution from each cup of lemonade sold represent?

• The amount of sales revenue from lemonade that goes towards covering fixed costs of the stand

• The difference between total sales from lemonade and variable costs of making lemonade

• The difference between total sales from lemonade and total costs of running the stand

• The portion of sales revenue from lemonade that is not used to cover variable costs of making lemonade

Answer explanation

The contribution represents the difference between total sales and variable costs. Contribution = Total Sales - Variable costs

Rick is planning to start a coffee shop. To determine when his business will start to make a profit, he needs to calculate the break even point. Which formula should he use?

• Fixed Costs / (Selling Price - Variable Costs)

• (Selling Price - Variable Costs) / Fixed Costs

• Fixed Costs + Variable Costs

• Selling Price / (Fixed Costs + Variable Costs)

Answer explanation

The break-even formula is Fixed Costs divided by the difference between Selling Price and Variable Costs. This formula helps determine the point at which total revenue equals total costs.

Imagine Sam's bakery, where he notices that the cost of ingredients like flour and sugar changes with the number of cakes he bakes. Which of the following best describes this cost behavior?

• They do not change as production levels change

• They include rent, salaries, and insurance

• They increase or decrease based on the company's production volume

• They are calculated after determining the break even point

Answer explanation

Variable costs increase or decrease based on the company's production volume, making them dependent on the level of production.

Imagine Ethan's Cafe wants to calculate its break even point. What role does the contribution play in this calculation?

• It is used to determine the total variable costs for Jennifer's Cafe

• It helps in calculating the total fixed costs for the cafe

• It is subtracted from fixed costs to find the break even point for the cafe

• It is used to calculate how much sales revenue is available to cover fixed costs for Jennifer's Cafe

Answer explanation

The contribution is used to calculate how much sales revenue is available to cover fixed costs, which is essential in determining the break-even point.

At what point does Eric's bakery break even?

• The total revenues from bread and cakes sold exactly match the total costs of ingredients and rent

• The bakery is incurring a loss

• The margin of safety for bakery products is positive

• The bakery's fixed costs, like rent and equipment, have increased

Answer explanation

The company has reached its break-even point when the total revenues exactly match the total costs, indicating no profit or loss.