Break-Even Point Analysis
Read this text on break-even point analysis. It goes through the process of calculating the break-even point for cost analysis under different scenarios. Take notes on each of the following: define the break-even point, differentiate between fixed and variable costs, and write the formulas on how to calculate the break-even point, calculate the contribution margin, calculate the contribution margin ratio, and calculate the margin of safety.
The Break-Even Point
Answers
1. B. A business is operating at a break-even when revenues match total costs, including both fixed and variable costs, over a given period of time.
2. A. When the amount of an item used by a business varies with the quantity of product or service produced, the cost is considered variable.
3. A. The breakeven point is calculated by determining the per unit contribution margin and then dividing fixed costs by that figure.