Break-Even Analysis definitions
Fixed Cost- costs that remain the same irrespective of output levels. E.g. Rent rates salaries
Variable Cost- costs that change as output levels change. E.g. Raw material electricity
Revenue- name given to the money coming in to the firm by selling products.
BreakEven- if a firm's total revenue is equal to its total costs its Breakeven.
Breakeven quantity formula- fixed costs / contribution per unit
Contribution- Selling price per unit - Variable costs per unit
BEQ = Fixed costs / Selling price per unit - Variable costs per unit
Margin of Safety- between BEQ and current output where profit is guaranteed