Cost behaviour and break-even analysis

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1. Margin of Safety in units of output

  • Planned Sales (units) / Break-even Point (units)
  • Planned Sales (units) – Break-even Point (units) x 100 / Planned Sales (units)
  • Planned Sales (units) – Break-even Point (units)
  • Planned Sales (units) + Break-even Point (units)
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2. BEP = [Total sales revenue =

  • Total cost - Fixed cost]
  • Total cost]
  • Total cost + Variable cost]
  • Total cost - Variable cost]

3. Break-even point (BEP):

  • It is the level of (output) at which total cost is equal total revenue.
  • When company generates a positive profit that is also an even number
  • When a company breaks into a bank

4. Opportunity cost

  • Value of an opportunity that has passed or been missed
  • Weighing up the value of each opportunity before decision is made
  • Value of an opportunity a business will take

5. Irrelevant cost examples:

  • Sunk / Expired / Historic cost; a cost that will be avoided by the company
  • Sunk / Expired / Historic cost; a cost that doesn't require the decision of management
  • Sunk / Expired / Historic cost; a cost that will not impact the company

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