Break-even Flashcards
All 8 cards in this deck
What is break-even output?
The level of output at which total revenue equals total costs, so the business makes neither a profit nor a loss.
What is the margin of safety, and how is it found?
The amount by which output can fall before a loss is made: margin of safety = planned (or actual) output − break-even output.
On a break-even chart, what does the fixed cost line look like?
A horizontal straight line — fixed costs stay the same at every level of output.
On a break-even chart, which area shows profit?
The area to the right of the break-even point, where the total revenue line is above the total cost line.
True or false? On a break-even chart the total revenue line starts at the same point as fixed costs.
False. The total revenue line starts at zero (no output means no revenue); it is the total cost line that starts at the fixed cost level.
True or false? At the break-even level of output a business makes a small profit.
False. At break-even total revenue exactly equals total costs, so there is neither profit nor loss.
What are the steps to identify the break-even level of output from a break-even chart?
e.g. the total revenue and total cost lines cross above 400 on the output axis
- Find where the total revenue line crosses the total cost line → the crossing point.
- Read straight down from that point to the output axis → 400.
- State it as the break-even output → 400 units.
True or false? On a break-even chart, the break-even output is read off the vertical axis.
False. It is read off the horizontal (output) axis, below the point where the total revenue and total cost lines cross.