Term
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Definition
| The level of output at which total costs equal total revenue |
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Term
| Break-even analysis can be undertaken in three ways: |
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Definition
Table of costs and revenues
Graphical method
Formula method |
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Term
| What are the steps in constructing a break-even chart? |
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Definition
1. Name the chart
2. Label the x (output) and y (costs and revenues) axis
3. Graph the fixed costs
4. Graph the total costs
5. Graph the sales revenues
6. Calculate: BEQ=fixed costs/contrib. per unit
7. Calculate and label the BE costs/revenues |
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Term
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Definition
| Selling price of a product minus direct costs per unit |
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Term
| What are the advantages of break-even analysis? (4) |
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Definition
-relatively easy to construct and interpret charts
-useful guidelines for management
-comparisons between options can be made
-can be used in the decision making process |
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Term
| What are the limitations of break-even analysis? (6) |
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Definition
-costs and revenues aren't always represented by straight lines
-not all costs can be classified into fixed and direct costs
-cost and price data is often estimated
-static model; excludes the possibility of sudden change
-ignores qualitative factors
-prone to error |
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