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10 Cards in this Set
- Front
- Back
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What is contribution? |
- the diffrence between the selling price and variable costs - the money contributes to covering fixed costs - what is left then is profit |
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Whats the formula for unit contribution? |
Selling price - variable cost |
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Whats the formula for total contribution? |
T contri = Total revenue - total variable costs T contri= Unit contribution - number of units sold. |
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What is break even point? |
The point where total costs are exactly the same as total revenue. |
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What is break even output? |
The level of output a business needs to produce so that total costs are exactly the same as total revenue (neither makes a profit or loss) |
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What is the formula for breakeven output? |
Fixed costs ÷ contribution |
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What can the breakeven chart show? |
The value of total cost over a range of output The value of total revenue over a range of output. The level of fixed costs over a range of outputs The level of output needed to breakeven The profit at a particuar level of output At levels below breakeven output the losses are made The relationship between fixed costs and variable costs as output rises |
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What is the margin of safety? |
Refers to the range of output over which a profit can be made. |
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How is the margin of safety identified on the breakeven chart? |
By measuring the distance between break even level of output and the current (profitable) level of output. |
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Why do businesses prefer to operate with a large mos? |
Because if sales drop they still might make a profit. If they have a smaller mos there is a risk that the business may make a loss if sales fall. |
